After the end of the third quarter of 2019, Federal Reserve started Quantitate Easing and said it will begin buying $60 billion of Treasury bills per month. This means a negative impact on the USD because it increases the money supply and reduces purchasing power for the US dollar. Another negative factor for the US dollar - the Central Banks such as Turkey, China and Russia, are reducing US dollar reserves, converting about $ 400-500 billion into other currencies (JPY, EUR).
WTI and Brent oil prices have lost almost 10% while safe-haven precious metals, Gold & Silver prices lost 5% from their highs, after the Iranian missile attack on Wednesday morning. The de-escalation in the Middle East tension together with the coming sign of the new US-China “Phase 1” trade deal, was celebrated from the global equity markets while the Dow Jones index hit new record highs.
The Iranian strike with 15 missiles against two US military bases in Iraq last night caused the rally on the price of Crude Oil and the safe-haven assets such as Gold, Yen and Bonds while the global equity markets and other risky assets experienced a hard sell-off. The situation could have been worse but the news from Trump and Iraqi government that no casualties reported for the coalition after the attacks, eased the initial fear for escalation of the US-Iran tensions as it seems that US might won’t retaliate back.
A big “risk off” day as a US air strike in Iraq killed one of Iran’s top generals, prompting threats of “severe retaliation” from Iran. Precious metals and oil prices jumped, while the safe-haven JPY and to a much lesser degree CHF benefitted. The risk-sensitive commodity currencies fell, except for CAD, which was caught in between the risk-off mood on the one hand and sharply higher oil prices on the other and as a result didn’t move much at all.
The main issue facing us today is…is this the last year of the second decade this century or the first year of the third decade? Some people argue that since there was no year ”0,” the first decade ended in the year 10 and the second decade started in the year 11, meaning we are currently still in the second decade of the 21st century. I disagree. If you’re 20 years old and you try to use this logic to argue that you’re still a teenager, people will laugh at you. I say welcome to the third decade.
• Monetary Policy: Recent comments by the FED that monetary policy is well-positioned gives a reason to believe that during the first two-quarters rates will remain unchanged and a change will depend on future fundamental data.
A surprisingly volatile market for this time of year – more substantial movement than I would’ve expected for the last active trading day of the year. It’s clearly a “risk off” move as JPY and CHF are at the top of the list, and silver & gold had a pretty good day too. No doubt that’s related to the sea of red I see on my screens when I call up the stock market page – S&P 500 down 0.6% and most Asian markets down this morning too.
I was off last week and not paying much attention to the markets. That seems like a good call, as there wasn’t that much change in the markets over the last week. The dollar fell against all the major currencies, but not by that much.
The story of the day was general USD weakness. There doesn’t seem to be any great reason behind the move, especially at this time of year – probably just end-year position-squaring and cleaning up before the New Year holiday.
WTI and Brent crude oil prices hit fresh 3-month highs at $62 and $68 per barrel respectively this Friday morning as the oil prices still get support from the optimism near U.S.-China “Phase 1” trade deal, the unexpected draws in the U.S. crude inventories, the OPEC+ cut deal and the stock market euphoria around the world.
Most of the major global stock markets trade near all time highs on Dec 24 amid the market optimism after the trade deal between US-China and the removal of trade tariffs, the possible recovery of the global economies in 2020, the removal of the uncertainty around Brexit after the UK elections and the support monetary and fiscal policies of some major countries.
Once again GBP is at the bottom. The high for the day was right at the London opening, it then started moving down and kept moving down until the Asian day started. For some reason it got a brief fillip up when the results of the Bank of England meeting were announced, but people quickly thought the better of that and it resumed its decline. The last paragraph of the statement was identical to the one following the November meeting and the vote was the same, 7-2 to keep rates on hold (with two people voting to cut).