At the end of the second week of October, the stock market bulls seem to be back in full form and the stock indexes are pushing higher and higher. On top of that, the VIX fear index contract seems to be falling.
European stock markets rallied on Friday, with the STOXX 600 index having its best week since March, surpassing 468 points, as strong corporate earnings were able to offset emerging concerns about inflation and stagflation. Banks were among the strongest responders to Thursday's quarterly results from major U.S. lenders. Investors also welcomed news that European Union leaders are expected to approve emergency measures next week to provide short-term relief to households and businesses amid an unprecedented energy crisis.
Meanwhile, financial regulators in China have ordered some major banks to ease mortgage approvals in the final quarter of the year amid concerns about the spread of the China Evergrande Group debt crisis.
All of this seems to have improved sentiment on the stock markets, where German DAX index futures appear to be up 2.45 percent for the week, while the U.S. S&P 500 may be up just over 1.7 percent.
Dollar under pressure
The week ahead may not be the best for the US dollar, which may end the week with its first weekly loss in six weeks. It seems that with the return of risk appetite, investors may turn away from the USD.
The US Dollar appears to have rallied since early September on expectations that the US Federal Reserve will tighten monetary policy faster than previously anticipated amid an improving economy and rising energy prices. The minutes of the September Fed meeting confirmed this week that tapering of stimulus is almost certain to begin this year, but interest rate hikes in mid-2022 are no longer so certain.
Daniel Kostecki, Conotoxia Ltd. (Forex service)
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