Gold prices leaked lower overnight as political uncertainties in Europe sent both the euro and British pound lower. These weaknesses served to lift the DXY dollar index to solid gains, pressuring precious metals, which are traded in dollars.
Two major developments in European politics are shaping global currency markets this morning. The surprisingly strong showing of the far-right, anti-immigrant “Alternative for Deutschland” (AfD) in German elections, and the refusal of Germany’s second-largest party to continue a coalition with Prime Minister Angela Merkel’s center-right party has upset the status quo in German politics. AfD will be the third-largest party in the German Parliament (Bundestag), promising bruising fights over immigration policy and Germany’s place within the European Union. This uncertainty pushed the euro common currency to one-month lows.
Across the channel, British Prime Minister Theresa May saw David Davis, her hand-picked negotiator in Brexit talks, contradict her recent statements regarding settling the UK’s bill with the EU, throwing the current round of talks into disarray. This has led EU leaders to publicly ask who is in charge on the British side, and what exactly do they want.
The dollar surge is doing nothing to dampen the rally in crude oil. Iraqi Kurdistan is going forward with an independence vote to break away from Iraq proper, despite threats from not only Iraq, but also Iran and Turkey. (Israel thinks all the turmoil is great.) Turkish president Erdogan has threatened to shut down the pipelines the Iraqi Kurds use to move their oil across Turkey to foreign buyers. This would choke off the only source of revenue for the Kurds, as Iraq is not likely to allow Kurdish oil to flow through its pipelines to the port of Basra if the Kurds secede.
This crisis sent oil prices more than 3% higher Monday, lifting oil into a new bull market (20% higher than the most recent low).
Wall Street is recovering from Monday’s swoon, which saw tech stocks plummet, in what seemed to be the start of a rotation out of tech and other growth stocks and into value stocks. Apple stock was hit by disappointing sales figures for the newest iPhone, and Facebook’s share price fell on worries over Russian intelligence agencies use of thousands of fake Facebook accounts to buy ads to influence the 2016 presidential election.
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