Europe
Stock markets in Europe are strong today in the wake of the severe-sell yesterday. Dealers are bargain hunting and those who were short are closing out those positions, as they are less fearful today. The standoff with North Korea is far from over, but for now, the immediate fear has slipped away. There are always pockets of quiet during a political storm, and this is one of those days.
It is worth noting that many of the eurozone indices such as the DAX, CAC 40 and IBEX 35 have been in downward trend for a few months now, and the latest scare regarding North Korea is adding to the downward pressure. Rebounds are just part and parcel of market movements, and it is important not to underestimate the seriousness of the situation. Traders may be content to pick up relatively cheap stocks today, but we have seen similar buying spurts fizzle out in recent months.
US
The Dow Jones and S&P 500 are largely unchanged today as traders weigh up the political events at home and abroad. The costs of the flooding in Texas and Louisiana, and the political ramifications of it are playing on traders’ minds. The clean-up costs will have to come out of the Federal government’s budget, and with the debt ceiling creeping closer it could be a problem.
The stalemate between Washington DC and Pyongyang is still ongoing, and even though the political situation hasn’t become any more heated, traders are still treading lightly.
The ADP employment report for August came in at 237,000, and that compared with the forecast of 185,000. The July report was revised up to 201,000 from 178,000. The US economy grew by 3% in the second-quarter, and that figure also topped the expectation of 2.7%. This bodes well for the US economy, and even though traders are not fearful of the Federal Reserve hiking interest rates in December, it tells us the economy is heading in the right direction.
FX
The EUR/USD had a soft start to the day and the respectable jump in Spanish GDP to 2% in the second-quarter couldn’t hold back the selling pressure. It was a worrying sign yesterday when the euro traded well above $1.2000, and then closed well under the mark. Today the decline continues, and the latest ADP employment report and GDP numbers from the US encouraged traders to go long the greenback.
The GBP/USD is broadly unchanged, and it is fair to say the pound has held its own today given that we have seen a broad rally in the US dollar. Sterling initially dipped on the back of the robust economic data from the US, and the pound turned around, which could be an indication the recovery we have seen in sterling from late last week is still in play.
Commodities
Gold took at knock today as trader’s dump the safe haven asset in favour of buying back into equities, and the impressive economic indicators from the US also put pressure on the metal. Yesterday, we saw gold hit a new nine month high, and seeing as dealers' fears have subsided slightly, there has been some profit taking.
The strong ADP employment report and high growth figures from the US gave traders another reason to sell gold, as it points to further monetary tightening from the Federal Reserve.
Brent crude oil and WTI price continue to be weak as demand at refineries is down due to disruption caused by the tropical storm in the US. Also playing in the refinery story is the high stockpiles of oil the US has encountered through much of this year, refineries are working their way through existing stockpiles rather than bringing in more.
The latest inventory numbers from the US showed that oil stockpiles fell by 5.39 million barrels, while the market was expecting a drop of 1.5 million barrels. Gasoline stockpiles rose by 35,000 barrels, while dealers were anticipating a decline of 1.5 million barrels. It is worrying to see a build-up in gasoline stockpiles during driving season, as it suggests demand is soft.
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