The week began with gains for the US Dollar as markets focused on US monetary policy and expectations of a rate hike sooner rather than later. The Dollar strength combined with increasing worries about the health of the Chinese economy led to across-the-board pressure on commodity prices. Gold, in particular, felt the heat as the precious metal slumped 4% to hit five-year lows. Large outflows were reported globally; however, Shanghai saw huge volumes, with 20% of a normal day’s trading volume changing hands in the opening minutes. Prices stabilised as the day wore on, and finished 0.4% higher at $1,100. After a poor week for oil, following the Iran nuclear deal, crude prices managed something of a recovery with WTI closing at $50.36 a barrel and Brent finishing at $57.04.
As well as USD Dollar strength, another emerging theme on the FX markets is the strong performance of Sterling following the decisive election result in May and underpinned now by expectations of rate rises this year. This theme looks set to continue into the latter half of 2015. Gains have mostly been at the expense of the Euro (+10% year to date), and there has now also been a strong bounce in Cable with Sterling now up 6.5% for the year versus the greenback. Although there are uncertainties surrounding the referendum on EU membership, which is due before the end of 2017, and possible agitation for another Scottish independence referendum, these seem to be well over the horizon for the time being and Sterling bulls are in control.
Data is fairly light today with only two releases from the States this afternoon; however, Australian inflation numbers came through this morning and, although they were up over the previous month, inflation remains at low levels and, in fact, are below market expectations. The Aussie gave away nearly 1% to both Sterling and the US Dollar as a result. NZD could see some volatility going into tomorrow’s session with a rate cut expected overnight from the RBNZ, but uncertainty remains over the size of the move.
Finally, equity markets had a disappointing start to the week with the Dow losing 0.43% as corporate earnings from tech giants Apple and IBM disappointed investors. Europe also took its lead from the US as the Eurofirst 300 slumped over 1%, and the FTSE slipped by a less pronounced 0.3%. Volatility also made a bit of a comeback after the VIX Volatility Index (also know as the ‘fear gauge’) bounced from its 2015 low.