Market developments short-lived when influenced by politics?

Market report Michael Blumenroth – 19.05.2017

Weekly market report

It has been an eventful week: the contemplative calm that ruled the markets throughout the past weeks and brought the margin of fluctuation down to a 24-year low seems to be over.

This is mainly due to the turbulences currently sweeping the White House as well as the (more or less) presidential reactions to the allegations brought against Trump – mostly through his preferred medium, Twitter. Market participants meanwhile are asking when the US government will come around to keeping its campaign promises of a tax reform and infrastructure measures. As a result, US stock investors went into selling mode and on Wednesday and US stock markets saw their weakest day since September 2016. At the same time, US government bonds took a downturn, and measured against Reuters’ DXY index the US dollar temporarily lost all ground it had gained since the US elections in November. The euro accordingly climbed to its highest rate against the US dollar since the beginning of November.

This situation was of course beneficial to the gold prices. While some investors fled into government bonds and the yen, the precious metal benefitted from its reputation as a safe haven. From 1,229 US$/ounce on Friday last week, the gold price climbed to 1,265 US$/ounce yesterday afternoon. Shortly after, in spite of market turbulence in Brazil, the stock markets and US dollar recovered, which in turn weighed down the gold price. It currently trades at 1,251 US$/ounce – a sound weekly gain.
Due to the stronger euro, Xetra-Gold slightly depreciated week-on-week, from 36.40 €/gram following a weekly low of 35.85 €/gram and a high at 36.50 €/gram to its current 36.25 €/gram.

The euro momentarily seems to have hit its peak. We will have to wait and see how it develops. Market developments are usually short-lived when influenced by politics. Next week, the focus might shift to Trump’s first overseas tour. With no news on economic data on next week’s agenda, things will again heat up in June, when the ECB is expected to make a statement on when its ultra-loose monetary policy is likely to end. And on 14 June, there will be news from the Fed.

I wish all our readers a calm and happy weekend.  

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