We are entering a phase in which we have to begin discussing fairly consistently the odds for a December rate rise. We are already leaning, on a fundamental basis, away from December, a minority position.
Meanwhile, after a severe dip in China export data, we experienced a lower U.S. dollar as measured against the yen and Swiss franc (haven currencies), as well as against the euro. The dollar was down about 0.40% against the common European currency.
In turn, that dollar weakness boosted gold $5.65 an ounce. Unfortunately for gold bulls, regular trading took it down $2.75, leaving us with a net gain of $2.90. Silver was essentially unchanged.
Why would we experience a dollar dip and a bond-yield dip after poor China trade data? Overseas slowdowns roil U.S. economic seas. Here are the cold facts: exports from China, the world's second largest economy, fell 5.6% in yuan terms in September from a year earlier and 10% in U.S. dollar terms.
This sort of data engenders uncertainty, which is expressed in volatility. Thus the attraction of haven currencies and of U.S. bonds. Lower yields mean reciprocal higher face prices, which tells us demand for bonds picked up.
The yield on the U.S. 10-year bond continues to retreat from the 1.80% level it had been flirting with earlier this week.
The VIX volatility index has risen by 25% since September 22, although it is far from its recent highs. There are a number of reasons for this, naturally. The data from China is one. The sluggishness of all economies worldwide is another reason. The repeated push and pull surrounding Federal Open Market Committee deliberations and outcomes is yet another. We will venture to say, too, that regardless of who you may support, the U.S. election is, at best, making many investors queasy and fearful. (Although Wall Street seems already to be pointing toward Hillary Clinton as the most likely winner.)
Let’s also start to keep a vigilant eye on the CME FedWatch. Note that the likelihood of a December interest rate rise went down today from 64 to 59.8 on the gauge.
Equities fell on the worries of stumbling bank earnings (due tomorrow) exacerbated by the unsettled air around the Wells Fargo debacle. W-F Chairman John Stumpf has resigned and there is still financial fallout yet to come from the sleight-of-hand pulled off by lower-downs on the sales team.
Finally, crude oil rose today on thin data. Larger-than-expected draws in diesel and gasoline helped prices bounce back from losses after measurements showed the first crude inventory build in six weeks.
Wishing you as always, good trading,