Dollar Climbs High And Sinks Gold And Oil

Today we have to contemplate whether consumer confidence, that is the public’s “attitude” toward cutting loose and stoking the fires of higher spending, is an idea or a reality.

After all, broad consumer spending is based on higher employment levels, higher wages, and access to credit. The model consumer can be whistling “Dixie” as he or she walks down the street, but that doesn’t mean that consumer is going to turn into the nearest store and buy four new pairs of shoes instead of one or a ride-on lawn-mower instead of an old-school push mower. Feelings are notoriously hard to quantify through surveys.

One way or another, the sharp rise in consumer confidence that came in well above projected levels, (101 vs 97) moved the U.S. dollar sharply higher today. That, in turn weighed heavily on gold and the entire precious metals complex.

The dollar was up half a percent against the euro and more than one percent against the yen. Gold is down about $11.00, of which $7.00 can be attributed to dollar strength. Silver is off 1.60%.

Interestingly, the yield on the U.S. 10-year bond inched up barely perceptibly. The bond market, unlike gold, oil and equities seems to reflect more doubt as to the direction of interest rates especially in the near-term. 

Speaking of oil, it fell again today as it remains trapped in a range that is defined by rumors of a freeze on one hand and oversupply due to over-production on the other. Some of today’s loss in West Texas Intermediate and Brent North Sea positively may be attributed to the stronger dollar but the fact remains too much oil is – literally – in the pipeline.

Although we are probably in a minority at the moment, we don’t see the oversupply issue clearing up until late in 2017, or perhaps even 2018. No player in the energy game wants to alter the game’s current rules by curbing production.

The price of oil, a new ripple of fear concerning the possibility of rising interest rates and sluggish growth elsewhere in the world quashed any incipient rally in Wall Street stocks.

Add to that the chilling effect of the EU’s unfair and retroactive tax grab on Apple-Ireland and you have an almost perfect storm for losses in equities. This will not be the last of the Apple tax brouhaha, which is rather just beginning to unfold.

If the ruling stands, it will leave many American companies puzzling out whether they should invest in Europe at all if they can be subject to retroactive taxes. Additionally, after the Brexit train wreck, it will leave a bad taste in the mouth of all strong supporters of stronger decentralized decision-making within the EU. The Irish – and other nations in the group – will likely ask if they, too, should drop out.

A retroactive move is also the kind of tricky maneuver that leaves European countries here in the U.S. subject to retaliation. This could be the start of an undeclared trade war.

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Wishing you as always, good trading,