The precious metals traded modestly higher on Thursday as central bank activity drove much of the action in early trading. Spot gold opened just slightly above unchanged for the second straight day, hovering around $1,277/oz before jumping above $1,280/oz. Gold has been stuck in a range below about $1,282/oz for the past two weeks.
Meanwhile the silver price added another 7¢ (+0.4%) after a strong performance on Wednesday, trading at $17.18/oz. Platinum ($930/oz) and palladium ($995/oz) were unchanged.
Following yesterday’s announcement by the Fed that there would be no rate hike in November, the Bank of England (BOE) actually did decide to raise interest rates for the first time in more than a decade on Thursday. This does only bring the key rate to 0.50%, up 25 basis points.
Somewhat strangely, the move by the BOE is being characterized in some circles as a “dovish rate hike,” given that the hike has been telegraphed for some time with inflation consistently picking up in the U.K. since last year’s Brexit referendum. Moreover, rates remain exceptionally low even after the hike of 25 bp. Because of this dovish interpretation, the pound sterling actually plunged 1% against the USD (its biggest single-day loss in five months) to $1.31 in trading this morning. (One would expect the currency to rise as interest rates goes up.) The FTSE 100 index in London rallied 0.5%.
The Federal Reserve, on the other hand, chose to stand pat at yesterday’s policy meeting in a unanimous vote. The central bank governors have struck a tone of optimism, leading most to believe the Fed is still on track for a rate hike in December. It has done so each of the last two Decembers, yet done little in the intervening months: the current federal funds rate is still only in the range between 1.0% and 1.25%.
The most recent “betting odds” based on market expectations pin the chances of a December rate hike at 85%. It’s not surprising that the Fed would make a habit of holding off on raising rates until December each cycle, giving FOMC members the maximum amount of time to assess the downside risk of tightening monetary policy too quickly.
President Trump is also set to announce his pick for the new Fed chair at 3 pm EST today. It’s basically a foregone conclusion that Trump will nominate Jerome “Jay” Powell, who is seen as the ideal compromise candidate: Powell is closely aligned with Chair Janet Yellen’s gradualistic approach toward interest rates, portending a steady transition in leadership, but he is also a Republican and has committed himself to being more open to cutting financial regulations than Yellen. This is more likely to appease both sides of the aisle if Powell is indeed Trump’s choice.
There was more economic news on Thursday as we wrap up what’s been a busy week. The Labor Department reported that the strong economic growth during the third quarter was paired with the best gains in productivity in three years. This was despite setbacks due to hurricanes Harvey and Irma.
The agency also reported that weekly jobless fell sharply to 229,000 the last week of October, coming in below consensus expectations (235,000 estimated). This brought the measure back in line with its average throughout 2017 after jobless claims briefly spiked in the wake of the aforementioned hurricanes.
In overseas markets, robust manufacturing data in the eurozone helped the euro and European bonds post gains. Overall, global stocks were rather mixed. The dollar was down about 10 bp to 94.7 on the DXY index. This still brought the USD near a six-month high against the yen, since much of the movement in the DXY was attributable to the plunging pound sterling. The 10-year Treasury yield fell about two basis points to just below 2.36%.
Traders have been piling into Bitcoin yet again, as the BTC price hit another new all-time high when it breached $7,000. Although the most popular cryptocurrency is up a staggering 600% year-to-date, it remains unclear how it will be regulated if indeed it starts to trade on the futures market. Bitcoin has been deemed to be a security by the CFTC—meaning it is not a commodity or a currency, as far as trading regulations are concerned.
Looking ahead to tomorrow, everyone will be awaiting the big jobs report in the nonfarm payrolls (NFP). The push for tax cuts will continue apace on Capitol Hill. After making his Fed chair announcement, the president will be off on a two-week diplomatic tour through Asia beginning tomorrow.
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