Gold threatens to fall through $1300 handle, U.S. equities reach record highs, yen loses haven appeal, and U.S. dollar rises

Sep 19 • Morning Roll Call • 2223 Views • Comments Off on Gold threatens to fall through $1300 handle, U.S. equities reach record highs, yen loses haven appeal, and U.S. dollar rises

We’ve become accustomed to many new buzz words and phrases since the various credit crises developed back in 2007/2008: TARP, asset purchase, credit crunch, ZIRP (zero interest rate policy), NIRP (negative interest rate policy), taper, taper twist, helicopter money etc. And how could we ignore the most infamous nuspeak of “Q.E.” (Quantitative easing). Well now we need to prepare ourselves to add one more phrase to the lexicon of double speak; “quantitative tightening”, or Q.T.

This new phrase is beginning to emerge ahead of the FOMC meeting this week (Wednesday evening), at which the chairs of the various Feds in the USA, will not only reveal their decision regarding the interest rate, but also discuss another phenomena which has been given a new label; “the great unwind”. The phrase relates to how the USA central bank the Fed, after ballooning its balance sheet to save the USA economy through buying debt from USA banks, will begin to unwind its circa $4.5 trillion balance sheet. As to when and how this procedure will take place is a problem of vast complexity, the assets have been accrued over a six year period, back when the balance sheet was only circa $1 trillion.

The rise in USA equity markets and the rise in real estate values since 2011, have occurred as a consequence of this massive Q.E. (asset purchase program). Debt has caused the GDP growth in the USA, and reliable data suggests that it’s taken $4 of debt, to achieve (or buy) every $1 of growth. A sobering statistic, which the down to earth and highly competent Fed chair Janet Yellen is only too aware of, which is why she’s on record as stating that watching the balance sheet reduce will be like “watching paint dry”. She’s aware of the consequences if the unwind is too quick and too dramatic; primarily a collapse in equity values.

In a relatively quiet day for economic calendar news, both Trump and BoE governor Carney provided the highlights, as both luminaries addressed the U.N. and IMF respectively. Trump telling the U.N. to reduce red tape and bureaucracy, citing that employment had doubled at its offices in New York over the last decade (ironic given that he wants jobs created and has a Trump hotel built nearby to host U.N. dignitaries). Meanwhile, in Washington D.C. Carney was busily rowing back, from last week’s hawkish commitment to raise the base rate in the U.K. anytime soon. The U.S. dollar rose, not necessarily due to Trump’s comments, whilst sterling fell moderately, mainly versus the euro and the U.S. dollar.

In the only other significant medium to high impact news of the day, we learned that Eurozone (CPI) inflation came in as predicted at 1.5% YoY, up from 1.3%. MoM August’s rise also came in right on forecast at 0.3%, ahead of the -0.5% recorded for July. The euro rose versus its main peers on this news, presumably investors believed it strengthens the ECB’s options to taper its stimulus and or to raise the interest rate, from its current floor of zero.

Both the DJIA (up 0.28%) and SPX (up 0.15%), reached fresh record highs on Monday. European indices closed up; STOXX 50 up 0.32%, FTSE 100 up 0.52%, DAX up 0.32%, CAC up 0.30%. EUR/USD closed up on the day, circa 0.1% at 1.1955, GPB/USD was down approx. 0.6%, at 1.3495, USD/JPY ended the day up circa 0.5%, at 111.41. Gold slumped to a low of $1304 per ounce, falling through S2, to then recover marginally to $1306. WTI oil whipsawed throughout the trading sessions, breaching R1, falling through S1, to end the day close to flat, resting near the daily pivot point, at $50.31 per barrel.

Significant economic calendar events for September 19th, all times quoted are London GMT time

09:00, currency impacted EUR. Euro-Zone ZEW Survey (Economic Sentiment) (SEP). The August reading came in at 29.3, an improvement is expected.

09:00, currency impacted EUR. German ZEW Survey (Economic Sentiment) (SEP). The forecast is for a rise to 12, from August’s figure of 10.

12:30, currency impacted USD. Housing Starts (MoM) (AUG). A rise to 1.7%, from the slump of -4.8% registered in July, is predicted.

12:30, currency impacted USD. Building Permits (MoM) (AUG). A reading of -0.8% is anticipated, from July’s surprise -4.1% figure.

12:30, currency impacted USD. Import Price Index ex Petroleum (MoM) (AUG). A rise to 0.2%, from the flat 0.0% reading is forecast.

12:30, currency impacted USD. Export Price Index (YoY) (AUG). An improvement, on the 0.8% registered in July is predicted.

22:45, currency impacted NZD. Current Account Deficit-GDP Ratio (2Q). No change from the -3.1% printed in Q1 is anticipated.

23:50, currency impacted JPY. Merchandise Trade Balance Total (Yen) (AUG). A balance of ¥97.0b is forecast, a fall from July’s reading of ¥418.8b.

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