Big blow to Trump pushed dollar lower
Fed’s interest rate hike already priced
Oil moved higher on back of inventary data
Gold under pressure ahead of Fed announcement
Getting anything meaningful across the line and facing failures may become even more regular routine for President Trump due to the victory of Doug Jones, a Democrat and a winner of the Alabama Senate race.
President Trump has faced many failures throughout this year mainly because his own party has not supported his views. Investors have even more negative views about the prospects of any GOP’s economic agenda changing into a law under the newly developed situation. Jone’s win would only bring more complications for president Trump because this is going to bring another blow for GOP Senate majority down to 51 seat. The tax overhaul deal, which has been the primary reason in the recent week behind the rally for the US equity markets, could start to see some gas coming out.
European futures are trading somewhat flat and the Asian session has failed to provide any clear direction and the projected win of Democrats in Alabama is not providing any aid either. Investors are going to remain mostly on the side lines as they await the decision from the Federal Reserve Bank. Although, it is widely known and priced in the market that the Fed is going to increase the interest rate by another twenty five basis points. However, what really matters for the dollar bulls and the equity markets is the future path of interest rate in 2019 which is currently divided between two or three rate hikes.
Investors would also like to know some information from the Fed if they are going to allow any room in their monetary policy if the tax overhaul does become a law.
In the commodity space, investors have jumped back in to the oil trade as the inventory data has suggested that the stock piles have dropped more than indicated. But we do not expect any major upside here because the US supply of oil in 2019 may outpace the demand, and it would impact the OPEC’s efforts to fade the global oil glut.
Precious metal is also trading mostly flat and we expect no major moves ahead of the Fed announcement. If the Fed comes out of the gate with more hawkish views on the economy and see inflation improving, it could impact the dollar index. Any further strength in the dollar index would push the gold price lower.