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AFEX Market Watch - 23rd July 2021

What Happened Yesterday

 The Australian dollar gained for the second day in a row and was the strongest of the G10 currencies. AUD was buoyed by ¬risk-on sentiment. Volatility dropped and share markets climbed with the ASX making a new record high. The only blight was the 5.7% fall in the iron ore price which was attributed to a slow down in production in China due to already very high stockpiles.

 America’s Department of Labour said new unemployment claims rose to 419,000 last week—an unexpected jump as the economy rebounds. There were 51,000 more claims than the week before. The number of new job seekers had previously been on a downward trend. Around half of all the states have now ditched the more generous benefits offered at the peak of the covid-19 pandemic. This may halt the Fed’s hawkishness.

 The European Central Bank assured investors that it wouldn’t repeat its mistake of raising rates too early. In 2011, as the world recovered from the GFC, the ECB made two rate hikes which ultimately choked off growth and has kept inflation low. They see current high inflation as transitory and will not be joining the BoE and US Fed in pulling back stimulus this year. The Euro responded negatively to the dovishness.

Major Risk Event

Earnings season in the US has highlighted the gap between big tech and consumer discretionary companies. The FAANG stocks and Tesla have paced ahead on the back of strong guidance. They have been doing well from the stay-at-home trend. Companies that rely on the economy continuing to open up are lagging. In spite of high vaccinations in the US and Europe, rising delta cases have brought fears of new restrictions.

Today’s Agenda

PMI numbers are released in all of the major economies throughout the next fifteen hours. They give a great indicator of underlying demand and economic activity. Numbers in the UK, us and Europe are predicted to remain very strong as the momentum of reopening continues. The Australian number, due at 9am, is likely to show the dreadful effects of the lockdowns that are currently imposed on the majority of the population.

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