Markets Update Wednesday 19/08/2020 – Fed Doves

Frankfurt – 19/08/20

Fed Doves

After the US stock markets continued their rally also during most of today’s trading day, the latest FOMC meeting minutes triggered a sizeable sell-off.

It all started as yet another record-day for the US equity markets, but then the mood turned sour. Then the Fed presented its latest FOMC minutes, which describe that the economic recovery in the USA depends on the further course of the corona crisis. 

At its meeting on July 28th and 29th, the US Federal Reserve confirmed its very loose monetary policy. The key interest rate was not touched and was left in a range of 0 to 0.25 per cent. Securities purchases and credit programs were continued. “The course of the economy will depend a lot on the course of the virus,” said Federal Reserve Chairman Jerome Powell. Without containment, he said, a full economic recovery would be incomplete. However, the central bank is prepared to use all available instruments if necessary.

Concerning communication, however, the Monetary Policy Committee backed off somewhat. Accordingly, several members advocated “at some point” providing more clarity on the future interest rate path, the so-called forward guidance. In the last minutes of the meeting, it was still stated that this would be done at one of the next meetings. 

These dovish comments triggered a flight into the US dollar and away from equities and commodities. Especially gold and the euro subsequently dropped like a heavy stone.

US Markets at a glance

The Dow Jones started with a plus of 0.11 per cent at 27,811.26 units. After the FOMC meeting minutes were published , the index lost all of its gains and closed 0.31 per cent lower at 27,692.95 units. The NASDAQ Composite tech stocks index climbed to another high, but the gains melted away, and the index dropped 0.57 per cent to 11,146.46 points.

Far East Markets at a glance

The major Asian equity markets again showed mixed performances on Wednesday. On the Chinese mainland stock markets, prices suffered from the cancellation of trade talks by US President Donald Trump. Also under pressure was the Hong Kong market, where trading was delayed due to a typhoon. In contrast, the Japanese market posted small gains.

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The Japanese leading index Nikkei 225 ultimately recorded a small plus of 0.26 per cent to 23,110.61 points. On the Chinese mainland, however, the Shanghai Composite ended trading 1.24 per cent lower at 3,408.13 digits. After the delayed opening in Hong Kong, the Hang Seng finally lost 0.74 per cent to 25,178.91 units.

New record highs for several US-American indices did not bring the Far East stock markets to momentum. Investors were very cautious before the release of the minutes of the latest Fed meeting, which were published on Wednesday evening. 

Mixed data came from Japan’s economy. Although orders in the mechanical engineering sector fell significantly in June and exports in July, at least the export data were nevertheless better than feared.

European Markets at a glance

Europe’s markets were slightly higher in Wednesday’s trading. The EuroSTOXX 50 started trading below its close of the previous day but ended 0.87 per cent higher at 3,318.39 points.

The Dax 30 lost 0.33 per cent to 12,838.63 units at the opening. In the day, however, it turned into the profit zone and finally closed the day 0.74 per cent stronger at 12,977.33 points. The TecDAX was somewhat weaker at the start of trading and then posted markups. It finally closed trading 0.59 per cent stronger at 3,111.41 points.

The strong euro and the high number of new corona infections proved to be temporary negative factors. Besides, economic data point to a recovery, which has drawn investors out of cover.

Forex, gold, oil and crypto

The euro fell sharply in late trading in the Forex market on Wednesday. The euro largely defended its recent gains from its highest level since May 2018 in afternoon European trading. Later on, however, profit-taking set in, partly as a result of the US Fed’s recent meeting minutes. Most recently, only 1.1856 US dollars was paid in New York trading, almost a cent less than just five hours earlier. 

Similarly, other major currencies, such as the British pound, Australian dollar, Canadian dollar or the Japanese yen also lost significantly after the US dollar gained strength across the board.

Oil prices have dropped slightly on Wednesday but remained almost unchanged. A barrel (159 litres) of North Sea Brent last cost 45.46 US dollars, one cent more than the day before. The price of a barrel of West Texas Intermediate (WTI) oil fell by 12 cents to 43.01 US dollars.

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The precious metals, but especially gold, came under heavy selling pressure after the release of FOMC minutes. The gold price plummeted from as high as almost $2,000 to as low as $1,925, closing the day at $1,938. Silver prices fell from a high of $28 to $26.50.

Cryptocurrency prices also slid lower in the wake of a strengthening US dollar. Bitcoin lost 0.3 per cent to $11,750, while Ethereum and XRP decreased more significantly by 1.3 per cent to $407 and $0.2890 respectively.

Corporate and world news

Economic data

Inflation data from the eurozone were in line with expectations in July, with an increase of 0.4 per cent over the previous month and farther away from the ECB’s target corridor of 2.0 per cent. German industrial order data from June was not as weak as feared, with adjusted growth of 1.4 per cent. More orders came from within Germany in particular.

The corona crisis is still putting a sharp brake on Japanese foreign trade, but the crash has slowed down somewhat. Exports of the world’s third-largest economy fell by 19.2 per cent in July compared to the same month last year, according to the Ministry of Finance. Analysts had expected a somewhat sharper decline on average. The minus was also less severe than in the previous month when exports slumped by over a quarter.

AP Møller-Maersk surprises positively

The world’s largest shipping company performed better than expected in the second quarter due to higher freight rates and lower fuel prices and raised its annual targets. With revenues down seven per cent to $9.0 billion, EBITDA rose by 25 per cent to $1.7 billion. Analysts had estimated 1.58 billion dollars. For the full year, the Board of Management now expects EBITDA before special items to reach six to seven billion dollars instead of the 5.5 billion dollars forecast at the beginning of the year.

Apple reaches 2 trillion market capitalisation

Apple is making Wall Street history once again: the market value of the iPhone giant has risen above the two trillion US dollar threshold for the first time. Never before has a US company traded so high.

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A little more than 1 per cent increase in the share price to more than 467 dollars was enough on Wednesday to lift the market capitalisation of the Californian tech group to the new milestone. However, Apple shares were unable to hold their price and Apple was still worth $1.9789 trillion at the end of the trading day.

Apple broke through the first trillion mark 42 years after its foundation and almost 38 years after its IPO – it took just two years for the second. This feat can be interpreted as proof of the continued success Apple continues to enjoy with its products despite a global crisis in the corona pandemic.

However, it is also an indicator of the extremely high valuations of tech companies in general and the investment pressure in the financial markets, which are flooded with cheap central bank money. Apple’s US rivals Microsoft and Amazon are also heading for the two with twelve zeros in terms of market capitalisation, even though on Wednesday they were still a long way short with 1.6 trillion for the Windows giant and 1.65 trillion dollars for the world’s largest online retailer.

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