The VIX Eases As Traders Remain Weary

Wall Street traded higher for a second day amid signs of strong domestic growth and a rally in Asia and Europe, marking the latest big move in a crazy week for global markets. The Dow Jones gained 369 points, or 2.3 per cent, to 16,655, wiping out all of the declines of early this week.  The S&P 500 and the Nasdaq Composite both gained around 2.5 per cent and also turned positive for the week. Stocks traded around 2 per cent higher for much of the session, though briefly pared gains to below 0.5 per cent in the last hour of trade before rallying once more into the close.

Gross domestic product, the broadest measure of goods and services produced across the US, expanded 3.7 per cent in the second quarter, the Commerce Department said, well ahead of expectations and up from an initial estimate of 2.3 per cent growth.

The volatility index slid a further 13 per cent but remains at an above-average mark of 26; another indication the recent outbreak of fear has not yet been fully sucked out of the market. The historical average is around 20, while it has held below 15 for much of the past two years.

European markets too ended in the positive territory after the Chinese market rebounded sharply post the recent sell-off.

This morning Asian markets are trading positive owing to robust release of US GDP data that led to a surge in US stock price as investors felt that this may prompt the Federal Reserve to hike interest rates this year. Moreover, shares across markets revived with Chinese stocks surging for the second day after the recent rout.

The US Dollar Index strengthened by 0.5 percent yesterday after the release of GDP data from the nation that showed improvement in the economy by more-than-expected. This was mainly due to surge in consumer and business spending thereby validating that in spite of turmoil in global markets the nation is intact on the growth path. Moreover, investors felt that this may prompt the Federal Reserve to hike interest rates this year thereby boosting the demand for the greenback. US Dollar Index made an intraday high of 96.06 and closed at 95.65. The US dollar is holding on Friday morning at 95.66.

 

Asian currencies have been a bit boring this morning, with the Aussie and Kiwi trading flat with low volume. The AUD is holding at 0.7163 near the bottom of its August trading range and the kiwi is at 0.6472 showing no reaction to positive comments from S&P as they held up the countries credit rating.

The Japanese yen saw the monthly government data dump with retail sales and inflation doing better than expected. The currency had little reaction with the USDJPY trading at 120.95 and the EURJPY at 136.22. Traders seem exhausted from this week’s insanity. The better-than-expected retail sales reading failed to comfort economists, however.

“The retail sales number is good but it may also be driven partly because of a weaker yen and tourism, and not really due to domestic factors,” as per CNBC. “Overall domestic demand is one of the key concerns in the recovery,” he said. Earlier this week, BOJ Governor Haruhiko Kuroda sought to reassure investors that the central bank’s 2 percent inflation target could be achieved by next year despite weaker oil prices.