Gold prices are trading in a $6 range this morning, as traders await the release of the minutes of last month’s Federal Reserve Open Market Committee (FOMC) meeting. Gold has been pressured by risk-on sentiment in the market, as well as a higher dollar. The dollar continues to build on top of an eight-month high, hurting stocks as well as commodities.
At 10am in New York, spot gold was $4.20 higher, at $1,256.60. Spot silver was trading at $17.51, up eight cents an ounce. The story of the markets can be summed up in one word: Dollar. The US dollar is hitting highs last seen in early March. Lifted by the rising tide of the US economy, the greenback is also being boosted by a still-weakening yuan and a battered British pound (the worst performing major currency in the world).
Speaking of the pound, it has had an up-and-down day. The opposition Labour Party in Parliament demanded the right to debate the government’s Brexit plan. Prime Minister Theresa May acquiesced to their demands, boosting the pound. However, the sterling dropped again when Brexit Minister David Davis “clarified” the government’s position, saying that while Parliament could debate the plan for leaving the EU, any vote on the subject would be ignored.
The Chinese yuan is posting deeper six-year lows today, as the central bank sets the trading band lower for the sixth straight day. Even the Japanese yen is weaker today, leaving the US dollar alone as the only major currency posting gains.
Sunday, Federal Reserve Vice Chairman Stanley Fischer told an audience at the World Bank meeting that the decision to keep interest rates where they were was a “close call,” reinforcing fears that the Fed raises rates in December. Bond markets are still pricing in a 70% chance that the Fed hikes in December. Common consensus is that the only thing staying the Fed’s hand is a below-desired level of inflation.
An eyebrow-raising three regional Federal Reserve presidents dissented on September’s vote, wanting an immediate rate hike. This, combined with Fischer’s statements, has traders eager to parse every word in the meeting minutes, more so than usual.
Wall St Blues
A stronger dollar is conspiring with bad start to the earnings season to put stocks under pressure. The muscular greenback is accentuating predictions of a Fed rate hike in December, depressing the Treasury market. If interest rates are about to rise, no one wants to hold bonds at current yields unless they can get them for a discount. This is why effective yields on the 10-year Treasury are at four-month highs.
Wall St saw its worst one-day drop in nearly a month yesterday, with the Dow losing more than 200 points. The S&P 500 fell 1.24%, while the Nasdaq was hammered 1.54% lower.
Oil markets were whipsawed yesterday, as the CEO of Russia’s largest oil producer publicly disagreed with President Vladimir Putin. Putin had announced Monday that Russia would cooperate with OPEC on a production freeze, but Rosneft CEO Igor Sechin said Tuesday that his company had no intention of abiding by any such deal. This compelled Putin to make some phone calls. Later in the day, Russia’s top two oil companies announced that they would comply with any production request from the government.
OPEC is now concentrating on getting non-cartel members to sign a pledge to freeze or cut oil production, depending on their circumstances. To make things a little easier to agree to, the production agreement would only run for six months, before being renegotiated,
Watch for market volatility immediately after the release of September’s FOMC minutes at 2pm today, then keep an eye out for counter-moves later in the afternoon.
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