Gold recovers from biggest dip in five months after Fed rate rise

23 Dec 2015 | Author: | No comments yet »

Asia markets hit as oil sinks and Fed effect wears off.

Not even more largesse from the Bank of Japan can bolster the bulls, with traders seeking the “safety” of core government bonds, nudging yields lower, and the dollar shedding some of its recent gains, writes Jamie Chisholm, the FT’s Global Markets Commentator.Hong Kong, China | AFP – Asian stock markets fell back on Friday after a two-day rally boosted by the Federal Reserve’s interest rate hike, as the rout in oil prices returned to centre stage, with commodity-linked shares again taking a hit.South Korea’s won dropped for a third week as depreciation in the yuan weighed on Asian currencies and after the Federal Reserve raised interest rates. Global equities initially responded positively midweek to the Fed’s landmark decision to raise its target range for the Fed funds rate by a quarter point.

Exchanges from New York and Sao Paulo to London and Tokyo cheered the Fed’s widely-expected decision Wednesday to lift borrowing costs for the first time in almost a decade, which was taken as a sign of its confidence in the world’s top economy. History has shown that Americans are more likely to vote for the incumbent party in a presidential election if they think that the sitting president is doing a good job. However, while European equities extended their advance on Thursday, Wall Street’s three main markets were dragged down by energy firms as oil prices tanked again on weak demand, a torpid global economy and a strengthening dollar. A number of factors can contribute to public opinions of a president, including terror attacks and scandals, but the performance of the economy is near the top of the list. The median in the Fed’s “dot plot,” a compilation of forecasts from members of its Federal Open Market Committee, translates into four quarter-point increases next year.

Some of the names in the energy sector tumbled in US trade, including ExxonMobil, Chevron, copper and gold producer Freeport-McMoRan, and mining equipment maker Caterpillar. The BoJ announced it will extend the average maturity of government bonds in its portfolio – an effort to flatten out the yield curve – and in something of a more symbolic move – also announced a new ETF purchase programme. Those losses were mirrored in Asia, with Sydney-listed Rio Tinto down more than two percent and BHP Billiton falling 0.9 percent, while Hong Kong-listed PetroChina shed 2.5 percent and CNOOC gave up 1.8 percent.

That isn’t a huge difference, but it does suggest that we’ll head into at least some Fed meetings next year without the kind of certainty we had this month. Other traders suggested the stockmarket was nervous about volatility during Friday’s “quadruple witching” on Wall Street; the end-of-quarter phenomenon when options and futures contracts expire.

As we saw in September, when the Fed was widely expected to raise rates but ended up delaying the move, markets get jittery when they have to ponder the will-they-or-won’t-they question. Japan’s Nikkei turned sharply out of positive territory to be 1.7 per cent lower after the BoJ’s surprise announcement, while Australia’s S&P/ASX 200 ended 0.1 per cent higher.

The sell-off was led by energy-linked stocks, which sank 2.5 per cent as a broad range of commodities turned lower, the sector pressured by global demand fears and Fed-fuelled strength in the dollar. The dollar is a touch weaker and resources are firmer on Friday: Brent crude is adding 0.2 per cent to $37.14 a barrel and copper is bouncing 1.2 per cent to $4,603 a tonne. His candidacy foundered after Lehman Brothers collapsed in September 2008, marking the onset of the most devastating financial crisis since the Great Depression.

The Pew Research Center notes that “what had essentially been a deadlocked contest between McCain and Obama before the Lehman meltdown turned into a solid lead for Obama in the weeks that followed.” Even media coverage of McCain started becoming more negative. Shanghai — which Friday marked 25 years since its first trade — saw a morning advance on data that showed new-home prices rose in November in more Chinese cities than the previous month thanks to government stimulus measures. Traditionally, the Fed avoids making policy changes close to an election. “We think they’ll struggle to get to four (increases) because of the election cycle,” says Dan Heckman, senior investment strategist at U.S.

That exacerbated pressure on the black gold, which has plunged about 15 percent since December 4 when the OPEC oil exporters’ group decided not to put a limit on output despite a global glut and anaemic demand. He even argues that it contributed to Richard Nixon’s loss in 1960 and Al Gore’s defeat in 2000, though Sabato noted that in those cases, “a hundred separate factors made the tiny difference.” Brad Miller, a Democrat who represented North Carolina in the U.S. House of Representatives from 2003 to 2013 and is now a financial regulatory policy analyst at the Roosevelt Institute, describes witnessing that dynamic over the course of his career. “People vote on the economy along the lines that you should always change a losing game and not a winning game — just do something different if it is not working,” Miller said. Brad Miller, former congressman But whether the Fed will raise the influential federal funds rate enough to tip the scales against Hillary Clinton or Bernie Sanders, the two leading Democratic presidential hopefuls, depends a lot on what the Fed does next — or how accurate Fed officials’ predictions prove to be. Even critics of Wednesday’s decision conceded that the initial quarter-percentage-point increase will not in itself put major downward pressure on economic growth.

Rehling gives the Fed high marks for the way it communicated that increase. “By including the word ‘gradual’ and including some specifics about their inflation concerns, they gave the market some clarity,” he said. In China, the renminbi was on track to decline for a seventh consecutive week after the central bank set the currency’s daily fix lower for a 10th straight session. The Fed’s top officials, including most of the members of the committee charged with adjusting interest rates, believe that the economy will grow enough to begin accelerating inflation in the meantime to a degree that will justify the rate increases and offset the effects of gradual rate hikes.

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