Fed minutes highlight inflation concerns

Thursday, November 20, 2014

Details emerging from yesterday’s release of last month FOMC meeting minutes confirmed the views held by a majority of market participants as policymakers moved closer to tightening monetary policy. Yields on 10 year treasuries rallied towards 2.36%, adding 60 basis points throughout the session as officials placed renewed emphasis on inflation which has stayed below the target rate of 2% for over two years. The underlying rhetoric remained unchanged however, with further ambiguity regarding the timeframe for an eventual rate rise swelling the ranks of market participants adopting a wait-and-see attitude to policymakers. The Bank of America Merril Lynch MOVE index, which measures volatility in treasury options picked up towards 70 yesterday, reaching a two week high as investors adjusted treasury holdings. Investors will be keeping a close eye on consumer price inflation and manufacturing data due out later today which could offer some additional market colour regarding the Fed’s next move.

Spot gold prices slipped back towards $1,180/oz yesterday after a brief foray above $1,200/oz as a stronger dollar and encouraging property data supported the dollar higher. After details from the FOMC minutes reassured market participants that a rates rise is on the horizon investors sold off holdings in the yellow metal with holdings in the SPDR gold ETF falling back towards 720 tonnes as investment demand faltered. Activity early on this morning has attempted to recover some of yesterday’s 1.22% decline as spot prices trade towards $1,185/oz.    

Today’s session sees plenty of economic releases to keep investors engaged with German PPI data kicking off proceedings earlier this morning. Producer price inflation came in as expected with the deceleration in factory gate prices extending further to -0.2% m/m in October after no change the previous month. With key eurozone manufacturing and services PMI data as well as UK retail sales figures out later on this morning investors in European equity markets will have plenty to keep themselves busy. The afternoon will see the release of US CPI data, weekly initial jobless claims and manufacturing PMI data as well as further statistics on the housing market which could offer further support to the dollar as it struggles with resistance towards 88.00.

10 year US treasury yields rallied yesterday on Fed minutes

USGG10YR Index US Generic Govt 2014 11 20 07 36 10

Spot gold prices falter as SPDR holdings drop

GDTRGOLD Index SPDR Gold Trust 2014 11 20 07 48 22

Events for today

0700

DE

Oct

PPI

0830

DE

Nov

Markit Services PMI

0900

EZ

Nov

Markit Mfg & Services PMI

0930

UK

Oct

Retail Sales

1330

US

Oct

CPI

1330

US

w/e

Jobless Claims

1445

US

Nov

Markit Manufacturing PMI

1500

US

Oct

Existing Homes Sales

1500

US

Nov

Philly Fed Business outlook

1530

US

w/e

EIA Nat Gas

Topics: US Fed, Gold, Inflation, DXY
More from: Kash Kamal