Originally published by Rivkin
As expected, the Federal Reserve (Fed) left rates unchanged at its latest six-weekly meeting last night. Markets didn’t expect a hike at this meeting due to the fact that it is just one week out from the presidential election and also because there was no press conference after this meeting during which Janet Yellen would normally explain the rationale for the Fed’s decision. The statement released with the decision last night stated that the case for an increase in the federal funds rate has strengthened. Market participants interpret this as meaning that a hike will occur at the next meeting in December and the market implied odds are now at around 80%. Two of the ten Fed members dissented against the decision and voted for a hike at this meeting.
The Dow Jones Industrial Average continued its steady decline and broke below 18,000 last night. The Dow is now at a three-month low, possibly due to uncertainty around the election result. The S&P 500 was also down having broken through 2,100 to close at 2,098. US stock market volatility has been unusually low for the last several weeks and so far the upcoming election hasn’t increased market volatility. The S&P/ASX 200, on the other hand, has dropped significantly over the last couple of weeks and fell a further 1.2% yesterday.
Gold, as well as Silver, were up sharply overnight. Spot gold is currently trading at $1,296 having bounced off a short-term low of $1,250 reached early last month. The run up in gold prices before the election perhaps reflects fear about what a potential Trump victory could mean for markets. On the other hand, oil continues to tumble with Crude Oil down 2.85% last night. At $45.53, oil is now well off its recent highs of above $50 /barrel. Part of the reason for the drop was a huge build in crude inventories in the US. The size of the build was 14.4m barrels, the largest weekly build ever recorded. In addition to the inventory build, US crude production was up for the third week in a row although overall it has been tracking sideways since June.
Also in the US overnight, the ADP employment numbers were released with an employment change of 147,000 compared to 166,000 expected although the previous month was revised up by 36,000. The ADP employment numbers are produced by a private company that attempts to predict the official numbers due to be released on Friday. In the Eurozone, German unemployment was down by 13,000, the largest fall since April this year. On the other hand, Eurozone Manufacturing PMI came in at 53.5, 1.8 points below expectations.
Data releases:
· Australia Trade Balance (September) 11:30am AEDT
· Chinese Services PMI 12:45pm AEDT
· England Services PMI 8:30pm AEDT
· EU Membership Court Ruling 9:00pm AEDT
· England Monetary Policy Vote 11:00pm AEDT
· U.K. ISM Non-Manufacturing PMI 01:00am AEDT
· U.S. Factory Orders 01:00am AEDT