In Spite of Fear of Fed Interest Rate Hike Risk On Hits Gold

In a classic risk-on day, equities, oil and the U.S. dollar rocketed up as gold fell and bond yields rose. On such a briskly upbeat day, it was only natural that the Japanese yen would fall against the dollar about as strongly as did the euro.

The day did not start out promisingly for stocks as Tokyo and Shanghai were down emphatically and Hong Kong was barely changed. However, once news of positive banking and insurance performance filtered onto the floors of European bourses, stock prices began moving up there with a vengeance. The French CAC and German DAX were higher by over 2.00% and the FTSE in London rose almost a point and a half.

The Dow and S&P 500 climbed more than 1.00% today following those sharp European gains. NASDAQ is up in midafternoon almost 2.00%. Tech and financials led the American parade overall.

One would be inclined to believe that with the fear of a Fed rate rise that’s been hovering like an alien spacecraft over American markets, equities in New York would have been a bit more subdued.

However, new home sales for April jumped 16.6% to a seasonally adjusted annual rate of 619,000 units, far surpassing expectations and the highest level since January 2008, which was pre-recession. This comes on higher existing home sales and rumors of a shortage of saleable housing units.

Back to Europe for a moment, though: "I just think we came into a positive tone, which was European equities doing better," said Art Hogan, chief market strategist at Wunderlich Securities.

Pointedly, it’s about time that some other region began pulling its weight in the total world economic picture. It’s been unreasonable all along to believe the U.S. could continue to lug the laggardly around much longer.

In Europe, too, there seems to be waning support for Great Britain’s exit from the European Union, commonly called “Brexit.”

A poll out today in the London Telegraph showed that, among those who definitely plan to vote, support for Britain remaining in the European Union stood at 55%, while that for Brexit was at 42%.

Late yesterday (Monday), Philly Fed President Patrick Harker said the Fed will likely raise interest rates two or three times in 2016. Harker is a non-voting member of the FOMC this year and one more out-of-turn talker.

The robust greenback piled on gold and the entire precious metals complex, helping to drive down the shiny yellow metal by almost $20 at 3:30 in New York. Regular trading was very hard on gold as well. Silver and platinum were off by about 1.00% and crazy palladium was off almost 3.00%.

The dollar did not come close to denting the thirst for higher crude prices. West Texas Intermediate was up about 1.40%, reaching its 2016 highs. The rise was on an expected weekly drop in U.S. stocks, which, in spite of dropping by 2 million+ barrels, is still in the 535-million-barrel range.

We expect other circumstances to put downward pressure on crude prices later this week and next. Remember there has been a big draw down in crude because of gasoline refiners’ needs stimulated by the long Memorial Day weekend. Thirty-eight million Americans are expected to be hitting the road beginning Thursday.

That giant sucking sound will quiet down until late June and early July when the Independence Day holiday comes upon us.

To close, let’s say we are wondering if the “threat” of a Federal Reserve interest rate increase is a paper tiger. So what if the rate goes up another 25 basis points? It seems that if we already are facing a housing shortage that obviates the need for expanding credit in one huge economic sector.

Housing apparently seems to have shrugged off the consequences of the last interest-rate hike just fine, thank you.

Wishing you as always, good trading,