Despite rising pressure from progressive Democrats for a switch at the head of the Fed, President Biden decided that he doesn’t want to change horses in midstream. US stocks are rising as continuity at the Fed remains. Financials surge following Biden’s decision to renominate Fed Chair Powell as financial markets price in more rate hikes and since Lael Brainard got the second top post and not Vice Chair for Supervision. This does not signal the banks are in the clear as they could see an even tougher regulator announced shortly.
Q3 2021 hedge fund letters, conferences and more
US Data
The housing market refuses to cool after existing home sales in October jumped to a 9-month high. Existing home sales increased 0.8% in October from September to a seasonally adjusted annual rate of 6.34 million homes. Home sales prices are 13.1% more expensive from a year ago and inventories remain tight.
The Chicago Fed National Activity Index dramatically improved from -0.18 to 0.76, with 61 of the 85 monthly individual indicators showing positive movements. The Fed regional surveys have mostly shown the economy got its groove back from the Delta variant and optimism should be high that economic activity will remain strong, but also that pricing pressures are far from peaking.
FX
The dollar popped alongside short-end Treasury yields after reports the White House is planning to stick with Fed Chair Powell. The dollar is seeing strong flows as US stocks attract foreign investors, rate hike expectations move forward, and as the latest COVID surge across Europe diminished prospects of a strong first half of the year for the eurozone.
Oil
Crude prices did an about-face after OPEC+ hinted they could adjust their output increase plan if the US is successful in getting many countries to tap their respective strategic petroleum reserves. Earlier, oil prices were declining as the energy market was bracing for a larger-than-expected release of global strategic petroleum reserves and as Germany struggled with the latest surge of COVID. Japan and India are looking to join the Americans and Chinese in tackling the recent surge in oil prices that has happened throughout the majority of the year.
OPEC+ is pushing back on this coordinated effort which is being led by the US to thwart surging energy costs as the global economic recovery stumbles to runaway inflation fears.
WTI crude will remain a volatile trade, but much of the downward move has already happened. An official US SPR announcement could happen as early as tomorrow and energy traders will look to see if that marks the bottom of the recent pullback.
Gold
Gold is getting punished as stocks hit fresh record highs and the dollar soars after President Biden selected Jerome Powell for a second term as Fed Chair. Gold’s weakness is noticeable and conveniently right when ETF investors finally decided they needed inflation-hedges. The move higher with real yields has accelerated some of gold’s weakness, but it is way too early for investors thinking this is the beginning of a sustained trend.
Gold has massive support around the $1800 level and with a shortened trading week, it could consolidate between $1800 and $1850 leading up to the December 15 FOMC policy meeting. Faster tapering and a rate hike already being priced in for the June policy meeting has been kryptonite for gold.
This is not the end of the gold trade, but there could be further short-term pain.
Bitcoin
Bitcoin is under pressure as the dollar and US equities rally following President Biden’s decision to stick with Jerome Powell to run the Fed. The Biden administration has also won over more nations in delivering a coordinated effort to tackle surging energy prices. Today was not a good day for inflation hedges and that is why both Bitcoin and gold prices are falling sharply.
Bitcoin was ripe for a pullback and it might not be over yet before traders confidently feel a bottom has been made.
Article By Edward Moya, OANDA
Updated on
