U.S. equities continued their rally this morning, as the good feelings from last week’s dovish Fed announcement are spilling over into today’s trading session. The dollar is down slightly off of its recent high of 89.6 on the DXY spot index, but is still strong ahead of tomorrow’s unveiling of an array of important economic data. Gold, silver, and platinum were all down slightly, although palladium jumped 0.8% in early trading to $812.75.
Yesterday in the Markets
Friday saw stocks post moderate gains, adding on to one of the strongest stock market rallies in recent memory. The surge kicked off on Wednesday afternoon following the FOMC meeting and swiftly wiped out a troubling trillion-dollar loss for U.S. equities the week previous. The S&P 500 posted its best weekly performance in nearly 2 months, while a significant amount of short covering in crude oil occurred on Friday. This led to a $2.41 gain for WTI, while Brent crude advanced $2.91, pushing both benchmarks up well over 4%.
The precious metals traded mostly sideways, and gold and platinum posted modest losses. Silver gained 1.2% to close above $16, but palladium was by far the strongest of the metals, rising by $13 (+1.64%) to move back above the $800 mark. Treasuries saw some renewed demand as the yield on 10-year T-notes slid 4 basis points to 2.17%.
In international markets, the ruble finally recovered by about 10% on Friday as the Russian currency is finally seeing some demand amid a domestic liquidity crunch. This was due to the Russian Central Bank’s decision last week to somewhat belatedly raise its key interest rate to an unprecedented 17%, doubling the interbank loan rate to 27%, an 8-year high. With cash more difficult to come by, the central bank has actually succeeded in stoking demand for the ruble, which was also aided by the rise in crude oil. With the U.S. holding veto power in the International Monetary Fund (IMF), it is unlikely Russia can turn to the Western financial establishment for help bailing out its economy, and must do everything to save the ruble.
Factors Affecting Gold Today
Everyone is keeping on eye and how the ruble behaves Monday, and whether or not it can hold on to Friday’s gains. Much of this seems to depend on where crude oil prices go. Although oil rig counts are already decreasing in U.S. shale fields, oil futures have been on the rise as many analysts are expecting a rally for the commodity after the dramatic plunge in crude over the last six months. Existing home sales dropped to 5.20 million in November after posting 5.26 million in October, perhaps speaking to the global economic slowdown.
Russia should also be helped by its recent cross-currency swap agreement with China worth about $24 billion, following the same path as Argentina’s central bank earlier this year. The two country’s respective economies have become increasingly integrated, as the two parties inked a $400 billion trade deal for natural gas earlier this year. With oil imports from Russia into China reaching an all-time high in November, it stands to reason that the Chinese would have an interest in keeping the Russian establishment afloat.
Since last Wednesday, stocks have jumped about 5%. In the U.S., many experts have noted the increase in volatility on the markets recently, and moreover the volatility of market volatility has been going up. The VIX volatility index crossed above the 20.0 mark for the second time in the last two months, though at times it has been as low as about 10. If volatility continues to define trading, we would expect stocks to eventually fall; for context, the S&P 500 has advanced in December each of the last 6 years, however.
Tomorrow will be an extremely busy day for economic news: consumer sentiment, 4Q GDP, durable goods orders, new home sales, as well as the personal income and outlays report will be released throughout the morning.