The big news driving the markets this morning was that the ECB cut its benchmark deposit rate yet again, sending the rate into negative territory at -0.3%. European stocks fell while industrial metals also retreated, though the latter had more to do with slowing demand in China.
The precious metals went the opposite direction, rising modestly at Thursday's open. Gold and silver each held slightly in the green near $1,058/oz and $14.15/oz, respectively, while platinum surged nearly 2% back to $850/oz.
Gold's new support level is around $1,045/oz and resistance is being observed at $1,063/oz, meaning that a closing price below the former or above the latter would indicate a near-term trend in that direction.
Yesterday, the metals posted steep losses: gold lost $15.60 to close right at the $1,053 support level, while silver finished below $14 per ounce. The dollar peaked above 100.0 on the DXY following a speech by Fed Chair Janet Yellen. Mrs. Yellen largely reaffirmed the Fed's intention to raise its own benchmark interest rate at its December meeting in 2 weeks. (This would be the first rate hike in 9 years.) In the energy sector, both Brent crude and WTI crude sank more than 4% as Saudi Arabia continues to grapple with its fellow OPEC members over cutting production to support higher prices.
All Eyes on ECB
Even though the move by the ECB was far from unexpected, it still had some interesting effects on the markets. There's something psychologically powerful about rates turning negative that goes beyond the immediate impact on trading.
One example of the odd response to the ECB decision was in the currency markets. Contrary to expectations, the euro rallied and the dollar fell, strangely enough. (One would expect the exact opposite to happen.) This may be explained by people "buying the rumor, selling the fact" in regard to the USD, while euro traders conversely "sold the rumor, bought the fact." The euro surged more than 2.4% against the dollar, its best showing in 9 months, recovering to near $1.09.
In addition to breaching negative rates, ECB President Mario Draghi added that the central bank's QE program would be extended 6 more months, and would broaden the range of assets it purchases.
On the other side of the Atlantic, Chair Yellen will be giving her semi-annual testimony before the Congressional Joint Economic Committee that includes both senators and representatives. While there are likely no surprises in store, it's yet another opportunity for Yellen to make the case for raising interest rates when the rest of the world seems headed in the opposite direction. We can anticipate that the members of Congress will grill Mrs. Yellen pretty hard given the apparent political implications of the Fed's policy-making.
More economic news that could have an impact on the markets was the weekly jobless claims report, which came in at 269,000 against an expected 205,000 new claims. While this is disappointing for proponents of normalizing interest rates in the U.S., it's probably not a devastating enough result to alter the Fed's plans.
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