Europe
European markets started the day lower with concerns over Chinese growth and stock market stability still front and centre. A positive open on Wall Street helped unwind some of the earlier losses in Europe by raising hopes that the low on Monday could mark an end to the last week’s heavy China-induced declines.
A number of key price markers have been broken in the past few days. Some solace can be taken from the fact that the FTSE 100 and German DAX were able to recover 6,000 and 10,000 respectively on Wednesday.
The source of the rebound on Wednesday was a move by the People’s Bank of China to inject 140bn yuan ($21.8bn) into the economy, a day after cutting interest rates and bank reserve ratios. It’s clearly a positive that Chinese authorities have woken up to the problem at hand, it’s just a bit of a worry it took them this long.
Rather than getting ahead of the game with a well thought out plan for stabilising the economy, the People’s Bank of China appears to be reluctantly easing policy any time there’s a drop in share prices. The net effect is that markets clamour for more stimulus while at the same time losing faith it will actually work.
Mining stocks are leading by example when it comes to volatility on the FTSE 100. Having driven the recovery on Tuesday, the basic resource sector is the biggest faller on Wednesday, dropping in line with oil and industrial metal prices. Outside of the benchmark index, shares of Betfair gained over 20% on news of a merger being agreed with rival Paddy Power.
US
Solid US economic data, stimulus efforts from the Chinese central bank and signs that the Federal Reserve are backing off from a September rate hike helped US markets to a dramatically higher open. Volatility was still very much present as large initial gains were halved inside the first hour of trading.
Anxiety is likely to maintain a tight grip over investors until the wild gyrations in share prices calm down and signs of a bottom are put in.
Growth in durable goods orders excluding transports slowed less than expected in July at 0.6%, down from a revised 1.0% in June.
Shares of {{|Syngenta}} slumped by as much as 17% on the news Monsanto (NYSE:MON) is no longer pursuing an acquisition.
FX
The recent trend of definitive US dollar weakness was reversed on Wednesday with the euro and British pound seeing some of the steepest losses after more positive durable goods data.
Dollar strength could prove fairly short-lived given statements from Fed member Dudley who stated in a press conference that the case for a September rate hike was less compelling than it was a few weeks ago.
EUR/USD has in the past two days given back half of its rally since last Wednesday, now hovering around 1.14 after topping out above 1.17.
Commodities
US crude inventories according to the IEA saw a surprise drop in the last week but in a telling sign of weakness, WTI crude dropped towards its lows around $38 per barrel following the report. Oil’s negative response to what is a sign of slowing production is likely because the small bit of positive sentiment towards oil had already been used up following the stockpile drop reported by the API on Tuesday.
Gold and silver came under heavy selling pressure on Wednesday as stocks markets showed signs of basing and the US dollar regained some strength. Gold is close to its lowest level in over a week and further declines risk undoing any chance of move to $1,200 per oz in the near future.
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