Yesterday’s release of the Federal Reserve Open Market Committee (FOMC) meeting minutes was largely an exercise in the markets hitting the snooze button. Following the release at 2 pm, the dollar was unchanged on the DXY index, bond yields held steady, and the precious metals were flat. Meanwhile, stocks continued to rally, with all three U.S. indices closing better than 1% in the green.
The lack of movement would indicate that most markets have already priced in a December rate increase from the Fed. On Thursday morning, gold erased overnight gains before spiking to as high as $1,084/oz (+$13). Silver also moved 1.25% higher to just below $14.50/oz. As of 10 am ET, spot gold was currently up 1% at $1,082/oz
Several blips of encouraging economic data have continued to bolster the case for a December rate hike in the eyes of most traders and investors. When food and energy are excluded, consumer price index (CPI) was actually 1.9% for October, right in line with the government’s inflation target. The dollar also pulled back slightly to 99.0 on the DXY—encouraging because an overheated USD tends to hurt exports and the trade deficit. Moreover, weekly jobless claims came in 5,000 claims lower at 271,000, just barely above 40-year lows.
If the Fed is committed to being “data dependent” in its decisions about interest rates, it would seem all that stands between the FOMC and a December rate increase is the nonfarm payrolls (NFP) report for November, which comes out before the committee meets again. The NFP for last month was extremely upbeat. There is also the near-consensus hawkish sentiment among Fed governors at the moment.
Yesterday’s uneventful minutes release did buoy a stock rally: the DJIA gained 1.4%, the S&P 500 rose by 1.6%, and the Nasdaq led the way 1.8% higher. It was the best one-day gains for the U.S. equities markets in quite a while. Global stocks followed suit overnight, closing in the green nearly across the board.
Slow and Steady Sets the Pace
Somewhat surprisingly, Thursday saw the precious metals stage a rally of their own while stocks were subdued. The early-morning jump for gold and silver was partly in response to the Fed indicating that the pace of subsequent rate increases will be shallow and slow after the first rate hike, which most don’t expect to be larger than 1/8% (0.125), anyway. This was taken as somewhat disappointing for the dollar, while the USD also lost ground on the euro. As a result, gold was the beneficiary.
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