Calm Restored as Risk Appetite Returns; China Trade


Rates as of 0500 GMT

Market Recap

Buy the dip seems to be the only thing you need to know to invest in stocks nowadays. The financial world seemed to be shaking at its roots on Thursday as the COVID19 delta variant caused a surge in cases around the world. Friday? Yet another record high for the SP 500 1.13 and a big jump 1.34 though not quite back to Junes record high for the STOXX 600.

I have to say I was unable to find any particular reason for the reversal in sentiment. The delta variant of the COVID19 virus, the cause of Thursdays rout, continues its inexorable spread.

With the reversal in risk sentiment came a reversal in the FX market, too. The commodity currencies gained and the safehaven JPY fell. Commodity currencies were helped by Fridays news of a 50 bps cut in Chinas required reserve ratio RRR. That will allow banks to lend out approximately CNY 1tn more money, which should in theory promote growth there. Theory doesnt always work out in practice, of course, especially as the marginal efficiency of lending diminishes each additional yuan lent out has less and less impact on the economy. While welcome, the move also signals that the authorities are concerned about Chinas growth prospects, so its mixed news.

It was noticeable though that the one currency on the continuation line was USD, which fell on Thursday and fell again on Friday. Perhaps the decline in US interest rates is finally having a negative effect on USD.

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