(Kitco, Wed. Sep. 18th, 2019) – Gold and silver prices are lower in early U.S. trading Wednesday. Safe-haven demand for the metals has waned a bit at mid-week as risk aversion has subsided just a bit. Traders and investors are now focused on today’s FOMC decision. December gold futures were last down $4.10 an ounce at 1,509.30. December Comex silver prices were last down $0.215 at $17.925 an ounce.
(MarketWatch, Wed. Sep. 18th, 2019) – Stocks drifted lower Wednesday as market participants awaited the latest monetary policy decision from the Federal Reserve. Treasury yields retreated.
Crude oil prices extended declines after President Donald Trump wrote in a Twitter post that he had “instructed the Secretary of Treasury to substantially increase Sanctions on the country of Iran!” Members of the Trump administration have previously suggested Iran was behind weekend attacks on key Saudi Arabian oil facilities – an allegation the country has since denied.
Here were the main moves in the market, as of 9:37 a.m. ET:
- S&P 500 (^GSPC) -0.34%, or 10.2 points
- Dow (^DJI): -0.29%, or 78.84 points
- Nasdaq (^IXIC): -0.33%, or 27.26 points
- U.S. crude oil prices (CL=F): -1.72% to $58.32 per barrel
- 10-year Treasury yield (^TNX): -4.6 bps to 1.768%
- Gold (GC=F): -0.01% to $1,513.20 per ounce
The Federal Reserve is set to deliver its latest monetary policy decision Wednesday afternoon at 2 p.m. ET, with market participants still widely expecting that central bank officials will cut rates for a second time this year.
The six weeks since the Fed’s July 31 rate decision have seen a bevy of global developments, which many investors have bet will make the case for further policy easing.
The U.S. and China each announced hikes to tariffs on one another’s imports throughout August, before de-escalating some of these threats at the start of September. A closely watched portion of the Treasury yield curve inverted for the first time in more than a decade, flashing a reliable recessionary signal.
And most recently, crude oil prices have fluctuated – and then precipitously came back down – as market participants wrestled to keep pace with developments over Saudi Arabian oil supplies and geopolitical tensions after an attack on the country’s oil facilities.
As of Wednesday morning, markets priced in an about 70% probability of a quarter-point cut to the benchmark interest rate, which would bring the target band down to between 1.75% and 2.00%. The balance comprised the probability priced in of no change to the target range, according to CME Group data.
The Fed’s rate decision comes as the New York Federal Reserve has continued to scramble to quell a spike in short-term money-market rates, with officials earlier saying they were willing to spend billions to infuse liquidity into the banking system and bring the rate back down to within the Fed’s current target of between 2% and 2.25%.
The sudden liquidity squeeze in the overnight repurchase agreements (repo) market – where banks and Wall Street dealers lend out to one another to meet their daily financing needs – that began Monday has been the result of a demand issue, likely caused as borrowers sought to cover corporate tax payments and settlements of newly auction U.S. Treasuries.
Wednesday morning, the effective federal funds rate again broke above the upper bound of central bankers’ target rate, climbing to 2.3%. The New York Fed took $75 billion of securities in another overnight system repurchase agreement, after having carried out its first repo operation in a decade on Tuesday with a $53.2 billion injection of liquidity.
The money-market chaos adds to a growing list of concerns the Federal Reserve must address in making its next policy decisions, and may come up as a point in Fed Chair Jerome Powell’s press conference at 2:30 p.m. this afternoon.
Some market pundits have speculated that the spike in overnight repurchase agreements will lead the Fed to expand its balance sheet through quantitative easing (QE), or by purchasing government securities and other securities on the market to increase money supplies and stimulate lending.
On Tuesday, Jeffrey Gundlach, CEO of DoubleLine Capital, told Reuters he believed the jump in repo market rates would likely spur the Fed to embark “pretty soon” on what he and those on Wall Street are calling “QE lite.”
In other words, instead of embarking on a major campaign of quantitative easing as a monetary policy tool, the Fed may resume purchases of certain securities as a technical correction to stabilize money markets and bring rates in line with the Fed funds target band.
“We see risks the Fed indicates they intend to stabilize the level of reserves in the system. This is not our base case for now but we see substantial risks of such an action,” Bank of America Merrill Lynch analysts wrote in a note. “Such a statement would imply that permanent balance sheet growth and outright purchases are necessary; the communication would likely be included in the Fed’s ‘implementation note’ and also likely be discussed by Chair Powell in his press conference.”
ECONOMY: New homebuilding jump to 12-year high
Housing starts, a metric tracking new homebuilding, jumped an estimates-beating 12.3% to a more than decade high in August, according to new data from the Commerce Department Wednesday.
The seasonally adjusted annual rate for U.S. homebuilding was at 1.364 million units in August, reaching the highest level since June 2007. Revised data also showed a shallower decline in July’s homebuilding to just 1.215 million units, from a decrease to a rate of 1.191 million units previously reported.
Meanwhile, building permits unexpectedly rose 7.7% in August to a seasonally adjusted pace of 1.419 million units, which also marked a 12-year high. Consensus economists had expected building permits to decline by 1.3% to a pace of 1.3 million units for the month, according to Bloomberg data. Building permits presage future construction.
Gains were broad-based for the month for both housing starts and permits, with three of four regions seeing increases in starts in August. The Midwest led advances, and saw the fastest rate of new homebuilding since mid-2018.
By category, the multi-family housing starts rose 32.8% in August and reversed two previous months of declines. However, this segment tends to be more volatile than the single-family category, which comprises the largest share of the housing market saw a 4.4% increase in starts for the month.
STOCKS: FedEx points to trade, end of Amazon agreement for weak earnings
Shipping giant FedEx (FDX) missed consensus expectations in quarterly results and lowered earnings guidance for the full-year in a report released Tuesday. Shares declined 11% in pre-market trading.
Adjusted earnings of $3.05 per share on revenue of $17.05 billion missed expectations for earnings of $3.16 per share on total sales of $17.06 billion, according to Bloomberg-compiled estimates for the company’s fiscal first quarter. The company sees earnings of between $10.00 to $12.00 per share for fiscal 2020, excluding some items and before an accounting adjustment for its mark-to-market retirement plan.
FedEx CEO Fred Smith said its performance “continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty.” During a call with analysts Tuesday, management also said that “the loss of volume from Amazon had a negative impact to the quarter,” with FedEx having severed ties with the e-commerce giant and delivery rival over the summer by allowing FedEx Express and Ground agreements to conclude without renewal.
Meanwhile, newly public company Chewy (CHWY) posted a wider quarterly loss over last year, due in large part to higher stock-based compensation expenses after the company went public.
The online pet-product retailer’s net loss widened to $82.9 million for the quarter ending in August, from $63.1 million last year. But sales beat expectations, rising 43% to $1.15 billion, versus consensus estimates fo $1.13 billion. It also raised its fiscal year sales expectations to see revenue of between $4.75 billion to $4.80 billion, up from earlier guidance for between $4.68 billion and $4.75 billion.
Chewy’s active customers rose 39% over last year to 12 million, with net sales per active customer reaching $352.
Posted by :
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com