European stock markets are heading for a mixed end to the week, with US futures taking a similar approach after daring to return to the record high on Thursday.
The promise of lower rates for a long time was music to the ears of Wall Street bulls, with banks loving the tightened yield curve that came with the statement. In theory, by aiming for an average inflation rate of 2%, the central bank should last a little longer before raising interest rates. Whether they do so to any significant degree is another matter. They have not had a good record of reaching their previous goals.
And the fact remains that we are nowhere near the point of a tightening cycle, so it will be a long time before we actually see this new policy in action. So far, little has changed. The taps will be on for the foreseeable future when the economy recovers from the devastation of the pandemic, hopefully aided by a vaccine later in the year.
Japanese stocks are slipping as Abe offers resignation
Japanese stocks got a hit overnight as rumors began circulating that Prime Minister Shinzo Abe would resign for health reasons. The rumors were confirmed this morning, bringing a sad ending to Abe’s eight-year reign, the longest-serving leader in the country’s history. The timing is also not ideal as the country is struggling with the pandemic, but this is the primary reason for his resignation as he did not think he was up to the task due to his health.
Abe’s resignation comes a year before the end of his term, so I can not imagine that there will be any dramatic change in politics, only after the election. Then the country can move on to a new model after nearly a decade of Abenomics failing to deliver the inflation the Prime Minister hoped to achieve.
Oil eases its heights
Oil prices are fixed on Friday, after pulling their highs a day earlier when U.S. refineries were spared the devastation of Hurricane Laura, which made landfall Thursday morning. While closed as Laura approached, the facilities should be up and running soon after avoiding any major damage, meaning output is only marginally affected. The impact could have been much greater, even if it came at a time when there is not exactly a shortage, but prices had risen only slightly in anticipation. WTI is back at $ 43 and Brent at $ 45.50, both slightly below their 200-day simple moving average.
Gold eye with $ 2,000
A turbulent few days at gold prices, but they have resumed the push higher on Friday, supported by a softer dollar and real interest rates falling lower. Greenback is now testing its lowest August and could resume the downward trend if we break down. For gold, $ 2,000 is the key, a break above could spur more purchases, while another failure could see the yellow metal consolidate. In the long run, it’s hard not to be bullish gold, as the Fed is not tightening soon, and if anything, more stimulus or yield curve checks may be needed. As always, patience can be just the key.