Market news

Overnight Headlines

*USD retreated after Powell testimony, first drop in three days

*US equities closed largely higher, US bond yields fell

*Crude oil dropped more than 2% on compromise Saudi-UAE deal

*Gold boosted by falling real yields, Powell assurances

USD failed to keep its upward momentum going finding resistance at previous highs around 92.84 on DXY. Chair Powell said that the economy was still a “ways off” from levels the central bank wanted to see before tapering its monetary support. EUR is trading above 1.18 again with decent near-term support now around this week’s lows at 1.1772. AUD is little changed after a strong jobs report overnight with the unemployment rate at its lowest since December 2010 (4.9% v 5.1% expected). Employment is now more than 1% above its pre-Covid level.

US equities closed mixed after Powell soothed market nerves about any imminent withdrawal of stimulus. The S&P500 ended marginally higher while the Nasdaq closed 0.2% lower. Asia trading is mixed too with Japan lower and weighed down by another surge in Covid-19 cases. China Q2 GDP y/y came in a tick lower than expected at 7.9% with the q/q figure a tick higher at 1.3%.

Market Thoughts – Powell not budging

By staying on message about the transitory nature of inflation and that the US economy is a “ways off” the Fed’s benchmark of “substantial further progress” towards reaching its employment goal, markets breathed a sigh of relief yesterday. The dollar and US Treasury yields fell after US Fed Chair’s testimony and even as the producer price index from June showed higher than expected inflation, which followed the biggest increase in the consumer price index (CPI) since 2008 that was released on Tuesday.

Jobs are a key element of the Fed remaining ultra easy and the US still remains well below pre-pandemic levels. But the market is obsessed with tapering and is getting increasingly baffled by the lack of any urgency in taper chat, which is no more elevated than it was at the mid-June FOMC meeting, even with more bumper data. There seems little reason to continue with some of its emergency bond buying, but we await advance notice for changes with the Jackson Hole conference in late August most likely the next staging point.

Chart of the Day – Gold likes Powell’s intransigence

Gold prices reacted favourably to Jay Powell’s testimony and broke to the upside yesterday.With the central bank continuing with its accommodative monetary policy depsite a spike in inflation  readings, the dollar sold off along with real bond yields, making the precious metal more attractive.

Prices had been trading around the 21-day SMA after bouncing off lows at $1750 in late June. Gold bugs are moving again this morning and trying to push past the 200-day SMA at $1825. Bullish momentum is certianly strong so if we can hold above here, especially on a weekly close, the $1850-$1900 zone comes into play. This would reverse the entire downside in the wake of the June Fed meeting. Otherwise, we drop back into the range around $1800.

Jamie DuttaAnalyst / Trader

"With extensive experience as a full time trader and financial market commentator, I have worked as a trader in top tier investment banks and trading houses, including Morgan Stanley and GAIN Capital trading Forex, Index derivatives. and Bonds. I combine technical analysis with a deep fundamental knowledge to identify trade set-ups. My real life experience allows me to break down the complexities of financial jargon and trading. This means everyone can better understand the compelling forces of greed and fear which are realised every day in countless ways across markets."

Vantage does not represent or warrant that the material provided here is accurate, current, or complete, and therefore should not be relied upon as such. The information provided here, whether from a third party or not, is not to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any financial instruments; or to participate in any specific trading strategy. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. We advise any readers of this content to seek their own advice. Without the approval of Vantage, reproduction or redistribution of this information is not permitted.