The dollar is rallying this morning, crossing comfortably above the 87.0 mark on the DXY dollar spot index, on the news that the Republicans have regained control of the Senate in yesterday’s midterm elections. Commodities and other world currencies fared worse; the dollar is trading near 115 yen this morning, a 7-year high. It was also up slightly against the euro. The yield of 10-year Treasuries notes fell one basis point to 2.34%.
Meanwhile, gold was down sharply after posting its first gain (albeit modest) in five days on Tuesday. Gold is now at its lowest price point in 4 and 1/2 years, falling through several support levels. Silver is also getting battered, quickly dropping 60 cents from this morning’s open to cross below the $15.50 threshold. Platinum is threatening to dip below $1,200 for the first time in nearly five years. Palladium, which had been holding out while the other precious metals plunged, lost over 2% on Tuesday to fall to $781. Crude oil fell right along with the metals, as West Texas Intermediate slid to a 3-year low.
Yesterday In the Markets
Economic News Affecting Gold
The ADP Employment report, which gauges growth in private sector employment, came in above economists’ expectations this morning, beating the projections of 220,000 jobs created in October by some 10,000 new hires. This makes 7 straight months of at least 200,000 new private sector jobs created in the U.S., as well as 56 consecutive months of positive job growth. These would appear to be signs that the job market and the broader economy are beginning to heat up, and may be poised for expansion.
This dovish outlook is also helped by the Republican Party’s sweeping victory in this year’s midterm elections. With negative sentiment toward President Obama at historically high levels, Democratic candidates had a difficult time overcoming voters’ poor opinions of their party’s leader. The Republicans gained a majority in the Senate, 52-48, and expanded their control over the House of Representatives, giving them a firm grip on the legislature. While some hope that the GOP will use its majority in Congress to combat and obstruct the president’s agenda, it may be of greater consequence in finance than legislation. The Republican Party has historically cultivated close ties with Wall Street, leading most to believe that the GOP victory in this year’s elections could lead to legislative changes that favor a rise in the stock markets. Yet, because the blowback against Democrats was foreseen by most, some analysts aren’t expecting the election to move the markets all that much. It remains to be seen what the shift in political power on Capitol Hill will mean for the Fed’s monetary policy over the next two years.
Meanwhile, falling crude oil prices are pulling energy stocks lower and broadly bringing most commodity prices down with cheaper transportation costs, among other effects. WTI crude lost over 2% on Tuesday, dropping $1.64 to a 3-year low of $77.14, while Brent crude also receded over 2%, sliding back $2.10 to close at $82.68.
Geopolitical News Affecting Gold
With intensifying anxiety over the fate of the European Central Bank’s stimulus plan, opposition to the leadership of ECB President Mario Draghi from within the central bank seems to be growing. Germany’s ministers have been especially loud about their displeasure with the extent–and ill-defined parameters–of the bank’s asset-purchase program. As the Eurozone’s largest economy, Germany has been forced to absorb the effects of the European recession, as well as the EU sanctions against Russia, while still attempting to rescue the other Eurozone economies. The ECB meets on Thursday, and will perhaps provide a clearer picture about how this round of quantitative easing will look in Europe.
Nonetheless, European stocks showed some much-needed strength on Wednesday morning, as London’s FTSE 100 was up nearly 1%, crossing past the 6,500 mark, and Germany’s DAX stock index was up over 1.2%. Japanese stocks were similarly on the rise, as the Nikkei 225 once again approached 17,000. The gains in both markets are likely attributable to the Bank of Japan’s surprise announcement last Friday that it would be expanding its QE policies under the leadership of Prime Minister Abe.
In addition to tomorrow’s meeting of the ECB, investors will be watching for the release of a number of important metrics in the U.S. First-time jobless claims, the Productivity & Costs consensus report, and the Bloomberg Consumer Comfort Index are all on the docket for Thursday. The latter measurement could help project how well the retail markets will fare during this year’s upcoming holiday season.