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Stock markets staged a Japanese-led fightback yesterday, although traders warned that risks remained.
Monday’s mood of panic faded yesterday on the back of a strong fightback from the Japanese market. Things also stabilised in the US and Europe as investors slowly realised their reaction to recent events may have been a tad extreme.
Tuesday had a morning after the night before feel, as markets sheepishly walked back their predictions of imminent doom. For the pound though, there was a further fall of half a cent against the euro and almost a cent against the US dollar. GBP/EUR in fact fell to its lowest in three months.
If you’re wondering why things went ballistic to begin the week, it was down to three main factors: US recession fears, Japanese interest rates and the value of tech companies. Services data on Monday showed it wasn’t all doom and gloom for the US economy and while tech stocks did take a pummelling, most analysts agreed that a value correction was long overdue.
The Japanese side of things was slightly more complex. As the Bank of Japan raised interest rates, fears grew that a number of big investors would face risk from ‘carry trades’, a fancy term for borrowing taken out at a low interest rate to fund riskier investments. Ultimately, markets decided their fears were overblown on all counts but some traders warned that risks lurked in the background.
Back to the data. The UK construction industry posted surprisingly strong numbers in July. UK construction PMI jumped to 55.3 last month, surpassing predictions of 52.7 and well above June’s 52.2.
UK house prices are also staging something of a revival. The Halifax house price index climbed to an annualised 2.3% in July, marking the fastest pace of price increases since January.
The German trade surplus narrowed to €20.4bn in June, below May’s €24.9bn and below forecasts. That marked the smallest surplus since October, as exports fell to the US and to the EU.
The Reserve Bank of Australia opted to leave interest rates unchanged at 4.35%. That was the sixth hold in a row, as policymakers remained concerned about inflation’s outlook in the medium term.
Kamala Harris has named Minnesota Governor Tim Walz as her running mate for the presidential election. Walz is something of a surprise choice, although his progressive mindset and midwestern background could appeal to swing voters. He has also spearheaded a recent Democrat gambit to label Trump and the republican party as ‘weird’.
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GBP: Bruising
Sterling is struggling to overcome its recent struggles. The pound ended yesterday at multi-week lows against the US dollar and the euro and you have to squint very hard to see an escape route in the next few weeks. Stranger things have happened, as recent events have shown.
GBP/USD: the past year
EUR: Holding its own
The euro is enjoying something of a renaissance. EUR/USD held at a solid level yesterday, while the euro continues to make hay at the expense of the pound.
GBP/EUR: the past year
USD: Panic over… for now
A frenetic start to the week saw calls for the Federal Reserve to announce an emergency rate cut. There was little chance of that happening and markets have duly staged a fightback. However, the US dollar faces a larger degree of uncertainty than it has for some time.
EUR/USD: the past year
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