Asian stocks are slumping to their lowest levels this year as a double whammy of worries about global growth and an end to the punchbowl of central bank support drives nervous investors to safety. US equities extended losses for a second day with the major indices down 1%. In turn, Wall Street’s fear gauge, the VIX, has spiked higher above its 200-day moving average and is trading beyond 21. This tells us how worried institutional investors are in the current bull market.
Risk sentiment dour
There aren’t many buyers or bulls out there this morning. While equities are being shunned, commodities are being sold with oil down for a sixth consecutive session and at three-month lows. Gold is pausing after its stupendous climb off the ropes after last week’s flash crash while growth bellwether copper has fallen to a two-month trough.
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The broadest measure of Asian shares is currently trading at its lowest level since December with the Hang Seng leading the way down. European markets are catching up with those across the pond while US futures are firmly in the red.
USD on the rise after Fed taper steps
We wrote yesterday about how the FOMC Minutes would offer clues on when the bank might start tapering its bond purchases.
Well, officials confirmed that inflation was now comfortably above their average 2% target and one or two more strong job reports will now be required for “substantial progress” to be made in the economy.
The Fed is still split on timing, but most members judged tapering could start this year. The minutes do not seem to set up a taper as early as next month. But the timetable is well within the consensus on Wall Street. This means with the bumper July payrolls already working their magic (and notably after these minutes), a solid August report could see a taper pathway announced at the September meeting.
Markets reacted quite modestly to the minutes initially. But this morning, dollar bulls are emboldened and have pushed to new long-term highs. The DXY breached the March top at 93.43 so a strong weekly close is probably needed to really rubber stamp the next leg higher for the greenback. Bulls will aim for last year’s November peak at 94.28, while long-term buyers may have the September high at 94.74. in their sights.
Oil sinking on broader market selloff
Commodities and oil have come under more pressure this morning with Brent off nearly 1% today and below $67. The spread of the Delta variant is clouding the demand picture. Output data from China also showed the least crude is being processed by Chinese refiners in 14 months. No doubt OPEC+ will be keeping their eye on prices and the demand side. The group recently left its forecasts unchanged and any rollback in the easing of production cuts could spark ire from the US.
Regarding technicals, May lows look like next major support at $64.60 with the 200-day moving average just below $64.
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