Yields dip, dollar drops and gold pops
It is a mixed day for equities, as European markets are in positive territory, while the major indices in the US are showing losses. Government bond yields are lower across the board, and the closely watched US 10-year yield is now 1.535%, down from over 1.6% yesterday. The slide in yields indicates that bond traders are less fearful about the prospect of monetary tightening, but it is worth noting that yields have been in an uptrend in recent weeks, so today’s negative move might just be a pullback.
Inflation is a hot topic these days and the headline CPI rate in the US hit 5.4%, up from 5.3%. The core CPI level remained at 4%, meeting economists’ expectations. Some market participants consider the core reading to be a better gauge of demand as volatile components such as food and energy prices are excluded. The fact the core update held steady suggests that demand is plateauing. Last week, it was confirmed the US unemployment rate fell to 4.8%, the lowest mark since the pandemic. The Fed are operating an extremely loose monetary policy, and to a certain extent, that is pushing up the inflation rate, but it appears as if the Fed are more interested in the jobless rate – which is moving in the right direction. The US dollar saw a lot of volatility as the CPI figures were revealed. Initially, the dollar jumped but then it turned sharply lower as it became clear that actual demand stood still. Lately, the dollar has been on a positive run and yesterday it hit a one year high, so today’s CPI numbers acted as a good excuse to book some profits.
Gold is driving higher, and it hit its highest mark since mid-September thanks to the slide in the US dollar. In late September, gold came under a lot of pressure as there was a strong rally in the greenback. For much of the past week, the metal traded in a relatively small range, but now it seems to be pushing higher. If the rally continues, it could target $1,800. Industrial metals like silver and copper are showing strong gains too due to the dollar’s bearish move.
WTI is down 0.3% but it is still holding above $80.00. On Monday, the oil contract hit a new seven year high as headlines about an energy crisis have been in circulation. Overnight, China’s trade surplus jumped to $66.8 billion, a seven-month high. Chinese imports decelerated from 33.1% to 17.6% in September, which speaks to a large drop off in domestic demand, which is likely to be a factor behind oil’s fall.