10
Jan
10
Jan

FOMC Minutes, US Government Shutdown, Palladium Reaches Record High

The recovery on Wednesday was short lived for the dollar, with the greenback falling to the lowest level since October against other major currencies. The minutes from the last FOMC meeting revealed that the central bank has an unclear policy path ahead with only gradual interest rate increases indicated. The the US rating agency Fitch is meanwhile threatening to lower the country’s rating from the currently highest available over the ongoing government shutdown.

The weak dollar allowed gold again to edge higher, pushing closer to the $1,300 mark. Oil prices rose again on Wednesday despite only a modest fall in crude oil stockpiles and a significant build in gasoline and distillate inventories.

Most stock indices around the world further extended gains on Wednesday, while the Volatility Index – VIX reached its lowest level in more than a month.

On Thursday in France data on Industrial Production and Italy on Retail Sales in November is expected. In the United States the weekly Jobless New Claims statistic will be released, as well as data on Wholesale Trade and Federal Reserve Bank statistics.

In the Asian-Pacific trading session on Friday the Japanese Housing Spending statistic and Australian Retail Sales data will be published.

EUR/USD

The EUR/USD rose sharply on Wednesday and further extended gains on Thursday morning, reaching its highest level since October. Minutes from the last meeting of the FOMC showed that Fed officials see the future path of its monetary policy as “less clear”, with some voting members only reluctantly accepting the rate hike in December. The minutes also mentioned that the central bank would be patient in its further policy with only seeing “some further gradual increases” as appropriate.

The ongoing government shutdown over the disagreement between Republicans and Democrats in Congress could affect the credit rating of the United States, with the rating agency Fitch threatening to lower the country’s rating. The rating agency S&P is already rating the US one step below the highest possible rating at “AA+”.

On Thursday in France data on Industrial Production and Italy on Retail Sales in November is expected.

The EUR/USD chart

Gold

With the weaker dollar, gold prices climbed again close to the high seen last week. Falling yields on US Treasury Notes with the 10 year benchmark again falling below 2.7% could have also supported gold prices as in theory it is assumed that lower yields of bonds seen as safe may help gold prices as this way the difference in terms of yield between bonds and the non-yielding nature of gold is reduced and thus the relative disadvantage of the precious metal as an asset is reduced. The dovish tone from the minutes of the last meeting of the Federal Reserve were said by analysts affecting the dollar and by extension gold.

Meanwhile palladium prices reached a new record high, which was to some extent attributed to an announcement by Chinese officials to support policies improving domestic spending on different items like cars or appliances. Palladium is used in catalytic converters of gasoline cars.

As gold is predominantly traded in US dollar, data from the US economy can have an impact also on this market. On Thursday the weekly Jobless New Claims statistic will be released, as well as data on Wholesale Trade and Federal Reserve Bank statistics.

The Gold chart

WTI Oil

On Wednesday oil prices reached the highest level since mid-December despite only a modest draw of 1.7 million barrels on crude oil stockpiles according to Energy Information Agency (EIA) data. Furthermore the build in gasoline (8.1 million barrels) and distillates (10.6 million barrels) inventories was significantly above expectations.

Analysts explained the recent move in oil prices to be possibly connected to the signs of progress in the US-China trade talks, which could ease the tensions between the two biggest economies by GDP and reduce the adverse economic impact.

On Friday the US Baker Hughes Oil Rig Count will be released, indicating the number of currently operating oil rigs in the United States. Since mid-October the reported number of operating oil rigs stood within the limited range of 873 to 888.

The WTI Oil chart

US 500

US stock indices closed for the fourth consecutive trading day higher on Wednesday. This comes as the US-China trade talks are seen making possible progress and the Federal Reserve indicating a more flexible path regarding rate hikes in the future.

Some of the best performing sectors were the chip sector (US Semiconductors ETF +2.42%) and energy stocks (US Energy ETF +1.45%). Most losses were seen in companies dealing in consumer non-discretionary products (US Non-cyclicals ETF -1.03%).

Ford (+4.06%) stocks jumped to a four weeks high with news circulating that unnamed sources indicate that the US car manufacturer would announce an alliance with Volkswagen, which could save considerable amounts in the development of new technologies.

Stocks of Constellation Brands (-12.59%) took a dive following the announcement of its quarterly earnings. Investors were disappointed with the company’s forecast for 2019, with weakness in the wine and spirits business, as well as the company’s investment in Canopy Growth (+13.30%) adversely affecting the outlook.

The earnings season is set to begin with Infosys releasing its quarterly results on Friday. Then next week companies like Bank of America, Goldman Sachs and Netflix are set to publish their quarterly earnings. 

The US 500 chart

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