Markets rebound as Dollar weakness supports risk appetite

Frank Walbaum

Markets rebound as Dollar weakness supports risk appetite

Risk sentiment is improving again, with global markets recovering after the recent sell-off. The US dollar remains under pressure across the board, and its weakness appears to be supporting the recovery in risk assets. Cryptocurrencies are also bouncing from key support levels, with pin-bar candlesticks across several tokens suggesting that buyers are stepping back in after the recent declines.

AUD/USD, which weakened yesterday, is also retracing higher today. The recovery appears to reflect broad US dollar weakness and technical buying rather than a clear improvement in the Australian economic outlook.

Market talk

US producer prices surged in September, raising fresh concerns about persistent inflation. The Producer Price Index rose 1.3% month-on-month, well above expectations of 0.5%. Yet stocks managed to recover, while Treasury yields fell sharply. This suggests investors are looking beyond the inflation surprise, with easing bond yields and reduced expectations of an imminent Fed rate hike helping to support risk assets.

The key question is whether this resilience can last. Much of the producer-price surge was driven by energy costs, but underlying price pressures also increased. If higher input costs feed through to consumer prices, the Fed may have less room to ease policy than markets currently expect. For now, investors appear more focused on stabilizing bond yields and the recovery in equities, but another round of inflation surprises could quickly change the mood.

Tendencies in the markets

Equities positive, USD weak, crypto positive, oil positive, metals positive, JPY stronger.

Author

Frank Walbaum

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