News of an anti-terror police raid today near Paris is mixing with caution in the markets ahead of the release of the Fed's October meeting minutes to keep gold near unchanged. Spot gold touched a five-year low of $1,064 overnight, before recovering back above the new support line of $1,067 an ounce. The next support under $1,067 is $1,063. First resistance for gold is $1,073, with first major resistance at $1,080.
The dollar has eased slightly this morning, marking time just under a seven-month low ahead of the FOMC minutes. Much of the recent gains in the US dollar has been from diverging monetary policy between the ECB and the Fed. While Europe is expecting new stimulus measures in the near future, US markets are bracing for the Fed to raise interest rates from near-zero levels.
This has pushed the euro from over 1.13 to under 1.07 against the dollar in just four weeks. Some analysts are saying that the euro has fallen so far, so fast, that it may see a bounce if the FOMC minutes aren't sufficiently hawkish.
Short-term Treasuries are being sold off ahead of the FOMC minutes, as investors anticipate more evidence of a December rate hike from the Fed. Different sources are putting the odds of a rate hike next month anywhere from 68% to 80%. On the other side of the Atlantic, the yield on the two-year German bund just set a new record, selling for -0.38%. This means that investors are paying the German government 0.38% over two years for the privilege of loaning their money to them.
Oil Remains Volatile
Crude oil futures were up as much as 2% in early trading, reversing yesterday's losses. Tuesday saw WTI close at $40.67 a barrel, back where it started the week. This drop, after large gains on Monday, were spurred by anticipations of another rise in US petroleum stockpiles. However, the American Petroleum Institute estimated stockpile fell 482,000 barrels. This fed Wednesday morning's gains. The official numbers at 10am from the Energy Information Agency showed a slight build of 300,000 barrels. Crude kept most of its gains after the news, as concerns over the stepped up bombing campaign in Syria played tug of war with fears of a growing oil glut.
What To Look For in FOMC Minutes
With everyone and their dog expecting a rate hike in December, attention is turning towards two other subjects: the timing of the second rate hike, and when the Fed expects to start selling down the $4.5 trillion of bonds it accumulated in its three QE operations. The FOMC minutes will be carefully scrutinized for clues on these subjects, as well as estimating the hawkishness of the different FOMC voting members.
Atlanta Fed president Dennis Lockhart spread his hawk wings a bit this morning. He told a conference of bankers and traders "I am comfortable with moving off zero soon, conditioned on no marked deterioration in economic conditions." Lockhart is considered a centrist at the Fed, and is looked upon as showing any movement in consensus on monetary policy. Other speakers today include noted hawk, Richmond Fed president Jeffery Lacker, who has maintained that a rate hike is overdue. Also speaking are Cleveland Fed president Loretta Mester, who has recently come out as supportive hiking rates, and the #3 man at the Fed, William Dudley of the New York Fed.
At the same event as Lockhart today, Dudley said "If we begin to raise interest rates, that’s a good thing. That’s not a bad thing. That’s a sign that the economy is actually returning to health, the Federal Reserve is getting closer to achieving our dual mandate objectives of maximum sustainable employment and price stability."
Even so, many people are looking towards the FOMC minutes for many different things, and someone is undoubtedly going to be disappointed.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.