What moved the market in the past week?
The minutes of the Federal Reserve’s October 31st to November 1st meeting revealed that Fed members had concerns about the impact on the economy should the trend of rapidly rising asset prices reverse.
The minutes stated:
“…several participants expressed concerns about a potential buildup of financial imbalances,…”
One can understand this concern as on a “Year to Date Basis” from December 30th, 2016 to the close on Wednesday, November 22nd, 2017 the three main indices were higher by:
- Dow Jones Industrials +19.20%
- Standard & Poor’s 500 +16.24%
- NASDAQ +27.98%
Broadening the view to the monetary policy area there was little in the minutes that would suggest the widely expected December 13th rate hike would not happen; i.e. several officials expressed in the minutes that they expected that interest rates will have to be raised in the “near term”.
The Dollar fell to a weekly loss, pressured by strong gains in the Euro. The EURUSD pair rallied again on Friday, breaking above the 1.1900 handle and the market looks set to continue to rally longer-term. Therefore, pullbacks may well prove to be temporary as 1.1850 is considered as the first support level with a floor set at 1.1700. Certainly, there is a mood in the bullish Euro camp to see the 1.2100 handle print by month end or early December.
The Euro was unfazed by the collapse of the German coalition talks; however, it now appears that the Social Democrats (SPD) who had refused to consider another Grand Coalition with the Christian Democrats (CDU), Christian Socialists (CSU) alliance immediately after the election may now see a political opportunity to extract a high level of influence over policy if they exploit their political position.
Straddling the area of foreign exchange and commodities is the cryptocurrency spectrum. The most famous name, Bitcoin traded higher on Friday, as bullish sentiment continued to make gains, while Ethereum surged to an all-time high after comments from the billionaire investor Mike Novogratz said that Ethereum would be trading at $500 by the end of the year.
On the U.S.based Bitfinex exchange, BTCUSDn rose to $8281.6, up $292.7, or 1.24% after rising to an all-time high of $8380 on Tuesday. Bitcoin’s market cap rose to $138 Billion.
It is ironic that after the CEO of J.P. Morgan said that Bitcoin was a con and that he would fire any trader dealing in it, the bank said on Tuesday, it was considering whether to provide its clients access to Bitcoin futures following the CME Group’s announcement to introduce bitcoin futures before the end of the year.
Gold prices ended the two-week winning streak as the market was unable to recoup the losses sustained on Monday, posting a weekly loss as renewed risk-on sentiment and falling geopolitical uncertainty saw cash fly away from the precious metal. However, any hint that the Fed may delay a rate hike priced in for March 2018 could open a new avenue of opportunity for gold.
Looking at the path of Fed Fund Futures 39% of traders expect the Fed to hike rates on March 21st compared to 45% in the previous week.
Crude oil prices settled above 2-year highs as speculative positions rose to a new 2017 high. Prices settled above the two-year peak on Friday supported by the tighter supply stemming from ongoing disruption to the Keystone pipeline, while a report suggesting OPEC and Russia agreed on a plan to extend output curbs lifted sentiment. Moscow and Riyadh now agree they should announce an additional period of cuts at the November 30th meeting.
U.S. crude production rose to a weekly record of 9.66 million bpd, the Energy Information Agency said Wednesday.
The week ahead
It is going to be a full slate on heavyweight economic data points in the next few days.
On Monday at 15:00 GMT we have US New Home Sales for October expected to be 625,000 down from 667,000 the month before. The September reading was the highest value since October of 2007 and the largest percentage gain since January of 1992.
Tuesday sees Q3 GDP from the UK and the day after we have the same for the US. In the case of the UK number due at 09:30 (November 28th) look for 0.3% QoQ down by 0.1% from Q2. For the US figure at 13:30 GMT on the 29th a jump to 3.5% from 3.2% is anticipated.
Thursday, November 30th sees Eurozone CPI for November at 10:00 GMT. This YoY number should still be shy of the ECB target of 2.0% and will come at just 1.6%…up from 1.4% in October.
Friday sees manufacturing data from Germany, the UK and US although all are not forecast to change very much from October to November.
Have a great week!
Written by Stephen Pope, LAT Senior Lecturer.