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Stocks fell and the dollar is stronger as minutes from the last Federal Reserve meeting indicated the US central bank will begin tapering of its monthly bond buying shortly. Details from the July meeting of the FOMC showed most policymakers “judged that it could be appropriate to start reducing the pace of asset purchases this year”, though there was some division over when to start and how quickly to dial back the stimulus.

“Various participants commented that economic and financial conditions would likely warrant a reduction in coming months. Several others indicated, however, that a reduction in the pace of asset purchases was more likely to become appropriate early next year because they saw prevailing conditions in the labour market as not being close to meeting the Committee’s ‘substantial further progress’ standard or because of uncertainty about the degree of progress toward the price-stability goal,” the minutes read. There have been some squeaky data points since the meeting, and the Delta variant is a concern, but it appears the Fed is close to consensus on beginning tapering this year. Meanwhile, the taper talk continues: St Louis Fed boss James Bullard said the Fed “should get going on the taper” as “the economy has adapted”, adding that “I don’t see the delta variant stopping that process”.

Stocks are broadly weaker with Asia leading the declines into the European session. Further weakness in Chinese tech amid a competition clampdown by the authorities saw Alibaba hit a record low in Hong Kong, where the broad market declined 2.5%. European bourses declined almost 2% in early trade and US futures are pointing to a weaker open. The FTSE 100 is back to the middle of the Jun-Jul range at 7,050. You have this cocktail that bad for stocks in the near term at least – Fed taper + rolling over in economic data after peak growth + worries about Delta exacting a longer-term drag on economic growth. US 10yr rates continue to bump around the 1.24% area they have clung to this week.

Whilst stocks weakened, the Fed minutes boosted the dollar. DXY sprang to its highest since last November as it hit 93.50, just nudging above the March peak. That left GBPUSD at a month low as it took at 1.36 handle, whilst EURUSD sunk below 1.17 to its lowest since Nov 2020. It seems the Fed is exiting emergency mode at a swifter pace than peers. NZDUSD also weakest in nine months after its central bank refrained from hiking rates as planned and more cases of Covid suggest lockdowns will continue for longer and the economy will contract.


  • ARKK – 1/8thstock on loan for shorting. About 24.87 million shares – or 13.4% of the ETF’s free float – are currently shorted, says S3, the most on record. Michael Burry is not alone.
  • Toyota shares fell as the carmaker announced it will cut production by 40% due to Covid and chip shortages, VW also warns on volatile supply chain.
  • Copper hits weakest since April as concerns about global growth and demand hit sentiment.

Oil is making new lows as the demand side worries further – despite a big draw in US inventories of 3.2m barrels, a build of 700k barrels in gasoline supplies hit sentiment as it suggested the spread of the Delta variant is impacting demand. WTI (Oct) is at its weakest since May with a $63 handle. As we discussed on Aug 10th, there was a real concern about demand not improving as much as had been anticipated.

Oil Chart 19.08.2021

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