Gold Holds Up Well Against a Higher Dollar as Equities Look to Continued Easy Money

There was a torrent of data and commentary to end the week today, which pulled some haven bets down but pushed equities and the dollar up.

What better place to start than with Janet Yellen? At a luncheon address in Boston, the chairwoman of the Fed said she believed that an economic opportunity to really feed gas and oxygen into the engine of the American economy was slipping away. In general, you could say she was arguing for the U.S. economic behemoth to “run hotter” than one would normally expect after recovery from a big recession.

"Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending, especially if accompanied by reduced uncertainty about future prospects," Yellen said. "In addition, a tight labor market might draw in potential workers who would otherwise sit on the sidelines and encourage job-to-job transitions that could also lead to more efficient - and, hence, more productive - job matches. Finally, albeit more speculatively, strong demand could potentially yield significant productivity."

(New York Fed president William Dudley also commented on a possible rate rise but his interview was released too late to be commented upon in today’s email.)

Better-than-expected earnings news from Wells Fargo informed equities trading today, briefly pushing the DOW up by 150 points. Stocks have since fallen back but are still in the green for the day.

Also serving to set up a risk-on day was positive data from China and considerably higher retail spending in the U.S.

Producer prices in China, the world's second largest economy, moved higher for the first time in almost five years, offsetting the harshly negative sentiment on radar yesterday that was generated by poor export.

According to CNBC:

“Consumer prices rose 1.9% on-year in September, while producer prices surprised by rising 0.1% on-year, the first increase since 2012. The consumer price index (CPI) had been expected to rise 1.6% on-year and the producer price index (PPI) was expected to slip 0.3%, according to forecasts from a Reuters poll of economists.”

U.S. retail sales rose 0.6% last month to snap back from a small decline in August that was the first in five months. A rise of 0.7% was predicted by experts, so not a big discrepancy. Auto sales and sales at service stations led the way. Of course, fuel prices have indeed gone up, so some of the increase comes via inflation.

Gold was sent downward about ½ of a percent by a particularly strong U.S. dollar on the day. The buck rose about 0.75% again the euro and pound, and almost 0.50% versus the yen, a haven currency. The Swiss franc, another haven was down about 0.40%.

Bond yields were steady to slightly higher, the 10-year now offering very close to 1.80% to keep investors interested.

So, haven plays are retreating but not all is happily-ever-after in Camelot. And that is leading some investors to shy away from going all in on a Fed December rate rise.

The Index of Consumer Sentiment fell to 87.9 in October, according to the University of Michigan on Friday, hitting its lowest since Sept. 2015.

Economists had expected the index to hit 92 in this mid-October reading, up from 89.8 in September's final reading, according to Thomson Reuters consensus estimates.

The October decline was concentrated among households with incomes below $75,000, whose index fell to its lowest level since Aug. 2014, according to the report.

One of the likely culprits is the uncertainty swirling around the upcoming presidential election, which is negatively influencing consumers, especially those with lower income.

In 2015, the median household income in the U.S. was $55,775. About 30% of all households earn more than $75,000 per year. But, there are anomalies in such statistics. For instance, a one-person household earning $50K is better off than a three- or four-person household earning $75K per year.

So, who is scared? Older, more poorly educated Americans, say above 45 years of age, living in a household that pulls in, probably, less than $40K. Most likely they live in exurban or rural areas. They are also more likely to feel as if their work positions are very vulnerable. If you are worried, you hang on to your money.

Be that all as it may, poor consumer sentiment engenders the thought that no rate rise is coming.

Wishing you as always, good trading,