Markets Crumble as Uncertainty Mounts

■ U.S. elections outcome & Fed rate hike outlook continue to weigh on markets

■ S&P 500 secures 9-day losing streak, the longest since Dec’ 80’

■ Haven-seekers set USD/JPY to 1.55% weekly decline, amid U.S. woes

■ GBP strengthens on U.K. High Court ruling, hawkish BoE

■ Modest gains for gold suggest market not in panic, yet

Concerns from a forthcoming monetary tightening were boosted this week with growing uncertainty from the outcome of next week’s U.S. elections. The S&P 500 complimented previous declines with five consecutive negative daily sessions, marking the longest losing streak for the index since December 1980. The CBOE’s VIX index, similarly, has now gone up to 22.51 points, its highest since June’s Brexit vote.

News items concerning U.S. monetary policy were certainly present this week, hosing both the FOMC’s rate announcement, as well as October’s nonfarm figure. It’s worth noting, however, that both acted largely as expected. The Fed’s sterile announcement, namely, not being followed by a press conference, had expectations for a rate hike standing at about 16%. The language used by the Fed, on the other hand, helped entrench confidence that December would be it, with the Fed saying that the case for a rate hike has continued to strengthen and that it decided to wait for the time being for some further evidence. With that out the way, Friday’s Nonfarm figure, seeing a modest 161K jobs added to the U.S. economy was enough to aid market expectations for a Dec rate hike increase to 78%.

U.S. uncertainty also translated to a weaker USD, with EUR/USD rising 1.4% for the week, ending at 1.1141. It’s worth noting, in this aspect, that the Fed’s Wednesday rate announcement was interpreted as a hawkish signal at the FX market, with the currency pair losing about 0.2% after it, evidently, to no weekly avail. U.S. troubles aided the JPY serve as the reserve currency of sorts, with USD/JPY losing 1.55% during the week, ending it at a level of 103.12.

Spatial effects are so far contained

Evidently, while a lot of uncertainty this week was generated by the U.S., it wasn’t confined to ‘Murica. Across the Atlantic, the DAX scalped 4.1% of its value this week, concluding a six-day losing streak. A more substantial 4.3% weekly loss was also recorded at the FTSE 100. Losses in the FTSE, duly noted were countered by the GBP adding about 1.1% vs. the EUR, following the High Court’s Thursday decision, ruling that the government must seek parliamentary approval, prior to its triggering of article 50. The Sterling also gained on the Bank of England’s rate decision, which celebrated the U.K.’s post-Brexit economy as being stronger than expected.  

Oil prices, meanwhile, continue to tumble down, with the black gold losing another USD 4.57 to USD 44.13, while securing a six-day losing streak. In addition to the factors outlined above regarding economic activity, concerns for producers’ ability to reach a deal continued to play a heavy role in dragging prices downwards. In addition, data released on Wednesday indicated that U.S. crude oil inventories have gained by the largest on record.

In spite of the selloff in equity, FX dynamics and oil’s weakness, it seems that to some extent market concerts are still contained, at least as far as gold prices show. The metal of kings did rise 2.3% this week, climbing to USD 1,305.06 per oz. On the other hand, it’s still considerably lower than were it was before October’s selloff, and about 4.5% lower than the peak of the year, recorded in July.