Return To The Mean As Normalcy Of War Quickly Settles In

Before examining the specifics of today’s markets, it’s worth a minute to take a look at the resilience of markets across the globe, especially in those economies that have fully embraced the western model of openness and optimism.

It bears repeating that the success of western-style democracies is based on an open system of thinking, speaking and communicating. Historically, closed systems fail, even as they present open systems with lots of trouble temporarily.

European stock indexes acted fully recovered from the horrific incidents of this past Friday. The German DAX rose 2.4%, the FTSE not quite 2.00% and valiantly, the French CAX snapped back with an increase of almost 2.80%.

American equities were not quite so lively, but nevertheless early in the day they rose between 0.30% and 0.45%. Naturally we’re most interested in the S&P, which we are trading in right now. In midafternoon it is down marginally, having earlier risen about 1/3^rd of a percent.

Many observations that can be made on any random day recently, can be made once again today.

Crude oil is dragging the equities down. The reason is one of the usual suspects. The infamous glut is prowling like a tiger. There is so much oil out there that we have to wonder if even a stiff production cut by the Gulf producers and the rest of OPEC can bail out the crude price.

West Texas Intermediate is off a bit over 2.00%, having fallen below the $41 mark. Brent North Sea is doing only marginally better, limping down by not quite 2.00%.

Oil is proving a drag on American equities. There are, though, a great number of other positive developments economically in the United States.

Inflation has been picking up, as reflected in the last two reports (one issued today). Why is more inflation good? Well, at least on the temporal level, it means we are coming to a resolution regarding the Federal Reserve interest rate riddle. Higher inflation makes it more likely the Fed will push the button on a liftoff.

The core consumer-price index increased 0.2% for a second month in a row as the cost of renting homes continued to climb. Health-care costs also rebounded, according to the Labor Department. Including the volatile food and fuel categories, surprisingly the broader index advanced 0.2%, the first gain in three months.

Perhaps reflecting this renewed demand, manufacturing expanded last month, although it still remains slightly sluggish. That means there could be less of a drag on the overall American economy as we get deeper into the fourth quarter. The strongest part of the expansion occurred in home building products and automobiles, both of which had slowed markedly of late.

Surprisingly, homebuilders’ sentiment declined slightly, although the very respectable number was being measured against an upwardly revised September figure. (The fourth quarter is notoriously slow for construction, given consumer attention to holidays and the general nuisance of doing anything as the year winds down.)

Whether it was the psychological recovery after the Paris massacre, a stronger dollar, slumping oil or rising dividend payouts from equities – some called Q3 dividend distribution “astonishing” and “record breaking” – gold felt the economic headwinds full in the face.

Gold was down more than 1.00%. Silver was down about 0.3%. Platinum and palladium fell significantly.

While it wasn’t terribly typical, we could say that this was a risk-on day, hitting the precious metals in the area where they still hold most strategic importance.

Wishing you as always, good trading,