Market Update – 29 September 2021

What a crazy day with FED speakers! 

Market analyst – Revolution FX

Yesterday we had one of the most incredible days in the past year in the stock markets. In Europe, UK100 lost 0.5%, and the German DAX was down more than 2%. This negative sentiment was observed. Last night S&P 500 closed down more than 2%, and Dow Jones was down 1.6%, while Sharply increase of Bond Yields, sent the tech stocks and especially NASDAQ 2.8% down in yesterday trades. 

Let’s start reviewing Mr. Powell’s testimony. He said economic “growth is widely expected to continue at a strong pace in the second half,… but the rise in COVID-19 cases has slowed their recovery.” About the Labor market, he mentioned that ” Demand for labor is very strong, and job gains averaged 750,000 per month over the past three months.” “Factors related to the pandemic, such as caregiving needs and ongoing fears of the virus, appear to be weighing on employment growth.” and for inflation, Mr. Powell told that “Inflation is elevated and will likely remain so in the coming months before moderating.” And finally, FED accepted that higher inflation will stay a bit longer with telling that ” These effects have been larger and longer-lasting than anticipated”

Except for Mr. Powell, we also had a speech from some other members. Yesterday, St. Louis Federal Reserve President Brad maintained a hawkish stance as well, stating that the Fed needs to be “slightly more aggressive”. Brad also said that the normalization of central bank policy will be faster than after the previous financial crisis, and also expects the Fed to raise interest rates twice in 2022. After FED chair testimony, Brad’s comments provided further support for the dollar bulls, and the market also ignored the economic data that missed expectations. 

On the economic data front, the Consumer Confidence Index of the Consultative Chamber of Commerce in September was worse than estimates. The data recorded a decline to 109.3, missing the market expectations of 114.5 and the previous month 115.2 (pre-revision: 113.8). At the same time, the Richmond Fed’s September manufacturing index unexpectedly performed unsatisfactorily and recorded -3, which was far below the market expectation at ten and the nine seen last month.

On the other hand, the latest news from the senate shows that the Republicans in the US Senate vetoed the bill to suspend the debt ceiling. Treasury Secretary Yellen once said that failure to raise the debt ceiling promptly will cause financial crises and disasters. This issue will cause a sharp increase in Bond Yields and will bring more cost for a consumer to pay their debts.  

Considering mentioned news and economic data, the US 10-year Treasury yield continued to rise to 1.55%, while in an unusual correlation, VIX also increased towards 22.12. Usually, with higher risk, bond yields decreasing, however, according to the mentioned situation, bond yields increased in past days. 

 

Market Update

 

In the Forex Market, the US dollar index hit a new high since November last year, closing at 93.74. Currently, DXY creating a very important level at 93.70 as its today’s PP as well. As long as it is trading above this level, we can see the next target above 94.00. Technical indicators also remain bullish. 

 

Market Update

 

With Hawkish tones from FED and its members that increased long-term Treasury yields and USD rates, Gold was under pressure in last days and it is still moving in its clear downtrend, to touch once more yesterday low of $1,728. Technical indicators on the other hand, while confirming the overall downtrend, have the correction signals as well, above its PP at 1,743.

 

 

And after a sharp decline in the stock markets, Oil also eased from its multi-year highs and ignored the API weekly report that was showing a sharp drop in US Crude Oil inventories. As technically we can see decline is almost done and a correction starting from daily low, fundamental data also confirming the correction and holding over uptrend. 


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