Saturday, October 4, 2014

Red Across the Board Save For the Greenback

QUICK READ:  This week was a veritable free fall for both stocks and commodities. This is contrasted by the dollar’s strength, as the dollar spot index continues to climb to four-­year highs.  Pro­-democracy demonstrations in Hong Kong dominated the headlines; despite the broad support for the cause outside of mainland China, uncertainty surrounding the outcome of the protests contributed to stocks trending lower in both East and West. 


The dollar continued to rally, as the DXY hit its highest mark since Summer 2010. After closing at 85.6 on Monday, the dollar spot index rose to nearly 86 by Friday’s open. The seemingly inexorable rise of the dollar has pushed precious metals and other commodities lower. 


Platinum and silver are at five­-year lows, as the latter briefly dipped below $17 early in the week.  Gold retested the important $1,207 level before bouncing back to $1,215. In the paper markets, commodity ETFs saw their greatest monthly outflow since December.


Along with weakness in other commodities, oil has been falling swiftly. WTI crude oil crossed below the $90 threshold for the first time in 17 months in response to abundant supply. Brent crude has entered a bear market, slipping to 20% below its 52­week high. Demand in the U.S. has waned with the shale boom and otherwise robust output, as domestic production is on pace for its best year since 1986. U.S. reliance upon imported oil dropped from 60% in 2005 to 32% in 2013, and is projected to fall to just 21% next year.


At the same time, several oil­-producing nations are seeing impressive output. Both Libya and Kurdistan (an autonomous region of northeastern Iraq) have dramatically increased oil production, while the 12­nation organization OPEC also saw production rise in September. Saudi Arabia, the world’s biggest supplier, is cutting output by 408,000 barrels per day, as global output is clearly outstripping demand.


Stocks tumbled this week, as each of the major U.S. indices dropped over 1%. The Dow Jones slid over 300 points (­1.78%) between Monday and Thursday, settling below 17,000. The S&P fared no better, losing 1.66%. Only the Nasdaq saw a day in the green, gaining a modest 0.2% on Thursday. Following three consecutive days of losses, the stock market largely stabilized at week’s end after considerable intraday volatility on Thursday. Despite this recent slide, all three of the indices are up double­digit percentages on the year. Tech investors are keeping their ears their ground in the perpetual hunt for bargains as eBay announced plans to split from its subsidiary PayPal, and Yahoo executives continued to mull over a potential merger with AOL. 


In the Asian markets, China’s Hang Seng was in free fall this week as uncertainty surrounds the student­led protests in Hong Kong. The index saw triple­digit losses on consecutive days, dropping over 3%. Japanese stocks were hit equally hard, partly due to poor manufacturing numbers. This was compounded by a market shock on Thursday when a so­called “fat finger” electronic trading error resulted in over $300 billion of canceled orders. The Nikkei 225 sank to a three­week low on what was essentially a large institutional user malfunction.


A LOOK AHEAD: 

Important U.S. economic indicators are scheduled for release next week, as the FOMC minutes for September’s meeting are expected to be released Wednesday, October 8th, and Jobless Claims will be reported on Thursday, October 9th. Undoubtedly, investors and policy- makers will anxiously watch to see if the Hong Kong demonstrations persist into next week once the national holidays in China are over.


By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.