Happy Friday, traders.
What kind of week has it been?
A bit of a kick-around, I’d say.
In soccer, the Sport of Capitalism (personal trademark pending,) a common refrain when reviewing a game is “It’s a game of two halves.” That is to say: headed one way the beginning things took a sharp turn after the midpoint. For precious metals, the last five days has certainly been a Week of Two Halves.
Started Moving Towards the Bottom…
— FXStreet News (@FXstreetNews) November 26, 2018
After a fairly calm Monday of trading, gold spot price got absolutely walloped by a rejuvenating US equity market on Tuesday, collapsing through what seems to be solid support at $1220/oz and eventually settling into a trough in the range of $1212 - $1214. A prevailing theory among my trade desk is not a terribly satisfying one: just poor timing. Our thinking is that with options and contract-month expiry arriving, and spot price at level highs going back to the summer, many traders on Tuesday were choosing either to take their profits from another run up that failed to crack $1230, or no longer wanted to pay the cost of carry on their futures positions and so they rolled out of gold entirely. This heard movement could easily have caused the price action observed on Tuesday as it’s not uncommon around expiry days (even more so, I might argue without having researched it, on the final expiry day before Christmas.) Regardless of the driving mechanics behind the move, it seemed like gold had once again been bounced below the $1220/oz level and might languish close to $1210. Half-time.
…Now We’re Here.
— FXStreet News (@FXstreetNews) November 28, 2018
Almost as if he wanted to open the door for me to stick with possibly thin metaphor, FOMC Chairman Powell cleared his throat and took the podium right at the midpoint of the middle trading day of the week, and he changed the flow of the game. As Chairman Powell seemed to shift his thinking from comments on October 3 suggesting that interest rates were still a ways to go from the Fed’s undefinable “neutral rate,” indicating on Wednesday that he and the committee (as confirmed in the FOMC minutes released Thursday) now believe rate may be within touching distance of “neutral.”
Another rate hike in December is still all but certain, however markets are now running with Powell’s implication that the pause in rate increases could come sooner than expected in 2019. The sooner they pause, the logical assumption goes, the closer the Fed believes the economy may be to rate cuts dictated by a recession and the risk-off, safe haven-buying that goes with it. Welcome back to the table, $1220 gold!
For the rest of the week since Powell’s comments and the spike in gold, we’ve traded a bit calmer in the same $1220-25 range we were looking at to start the week—the one exception being a brief dip back below the band in reaction that that strong Chicago PMI number.
It was a week of two halves for gold, but in the end we seem to be finishing with a tie, locked back at $1220.
Another Rude Week for Crude
To many energy traders’ dismay, WTI crude oil did in fact trade below the psychological red-line of $50/barrel for the first time in a year during a stretch of the European session early Thursday morning. Texas Tea has recovered to $50 since then, which is may well be a sign of the apocalypse averted; this late in the game it’s hard to imagine a 2018 close for WTI with anything higher than a $50-handle as both Saudi Arabia and Russia seem happy to keep pumping even in the face of 10-consecutive weeks of US inventory builds and a serious increase to US supply looming in 2019.
Stocks and USD Recover, but Don’t Inspire
Equities this week have mostly recovered from the beating they took during Thanksgiving week, pretty much entirely thanks to a surprise shift in language from FOMC Chairman Jerome Powell:
— TicToc by Bloomberg (@tictoc) November 29, 2018
Still, and this is definitely one of those points where I’ll remind you: this is not investment advice, it doesn’t feel to me like this has been a confident correction. The narrative and the outlook for the US economy has not significantly improved in the last week with the exception of a Friday PMI read, and even the more positive numbers like Personal Income & Spending came with some less encouraging undertones. I’m not here to call this week a dead cat bounce (in part because last week was nowhere near a bottom,) but it sure seems more likely that stocks trade down again next week; especially with the trade-related negotiations taking place over the weekend at the G20 summit in Argentina.
It’s been an up-week for the US Dollar, although not spectacularly so. The greenback in fact seemed downright calm, relative to the action of other assets tied to the US economy, once the benchmark USD/JPY cross crossed back above 113.
US Housing Shows Cracks in the Foundation
The US housing sector had another rough week, as the latest data indicative of home prices and new home sales both show notable declines, with my own hometown seeming to lead the way in terms of anecdotal evidence that supports the data:
— Barry Ritholtz (@ritholtz) November 27, 2018
After the last few weeks it’s fair to say that US traders should keep an eye on housing data moving forward, as it serves as an impactful forward-indicator on the health of the US economy as a whole.
Jobless Claims Trending Hire
In the very specific category of “US Economic News That I Will Also Count as a Personal Victory”: weekly initial jobless claim are starting to make some moves worth remarking on *and* I’m not the only one harping on you about paying attention to them. Bloomberg’s Joe Weisenthal, one of my personal bellwethers, had this to day in his Monday note:
“Claims just keep getting lower and lower, subject to the occasional blips and volatility (like all data have). Pointing to low initial jobless claims is a great rebuttal to people who say that there's been no fundamental improvement in the real economy and that the market is just a big bubble. On the other hand, while initial jobless claims are still really low, they have been ticking up a bit lately, and are currently at their highest level since June.”
We saw the trend higher continue, strongly, this week as Thursday’s initial jobless claims number came in at nearly 235k, compared to broad expectations of 220k. As with recent housing data, it sure seems like November is making it clear that we ought to start paying attention to these signals.
We’ll be back next week with a lot to talk about, as we’re not only eyeing some important US economic data like Non-Farm Payrolls and PMI, but we’ll also be discussing this weekend’s goings on at the G20 summit in Argentina and recent developments in UK Brexit negotiations, which are heading towards a “meaningful” point on December 11.
Enjoy your weekend, traders. I’ll see you back here on Monday.