Precious metals, oil, and U.S. stocks are easing off the “sugar rush” triggered by the Federal Reserve’s surprise announcement Wednesday not to curtail economic stimulus measures this month. Already, Fed Open Market Committee members are hitting the circuit, talking down the markets by hinting the reduction in the $85 billion a month in bond purchases might start next month. If they don’t, the Fed will have lost its most powerful weapon in dealing with the economy: the trust of the market.
Gold is down for the first time in three days, seeing some totally understandable profit taking after a $70 jump in the last day and a half. Analysts say that seeing a correction in the $20 range after such huge short-term gains is perfectly understandable. Gold actually held up well in overnight trading, despite the expected reduction in physical demand from the sudden price hike. Chinese and Hong Kong markets are closed today for holiday, which dampened any swings up or down.
European markets were choppy today, as Sunday elections in Germany loom. German Chancellor Merkel has been essentially guiding EU economic policy, especially regarding the bailout of weaker nations such as Greece, Spain, and Portugal. This weekend elections will determine if she wins a third term or not.
India led emerging markets lower overnight with a surprise 1/4% hike in their benchmark rate. The repo rate is now 7.5% in an attempt to combat inflation. The move had the opposite of the desired effect, at least in the short term, as the rupee gave up recent gains due to the Fed’s decision not to taper. The Fed not tapering means yields in the U.S. will remain low, and the “hot money” would start flowing back into the emerging economies like India’s.