What to Watch For: Italian-Exit, Gold Lows, Trump vs. Fed

In this week’s What to Watch For we are looking at the possibility of an Italian Exit of the EU, Gold hitting lows and what president-elect Trump might have planned for the US central bank. Could it be a Trump vs. Fed to come?

Investors Are Making Plans for Europe’s Next Populist Surge (Bloomberg)

After what many would consider surprise voting results in the aftermath of first the Brexit and then a Trump presidential victory – what’s next.  Bloomberg highlights the coming Italian December 4th referendum on whether Italy should maintain current constitutional norms or alter the way its government functions. The prime minister of Italy has hinted that he might choose to step down if met by a populist victory during the vote.  

Many have noted that if the amendment goes against the current government, it could lead to an eventual Italian exit from the EU. “With the populists’ efforts to topple Prime Minister Matteo Renzi gaining traction, investment funds are trying to get a handle on the policy plans of the anti-establishment party.”

The case for Italy leaving the euro area and the repercussions on the other member states would have a massive impact.  The lifeline of the EU, its economy and the euro currency will be largely watching the referendum with caution.

Gold Hits 5-month Low on Strong Dollar, Treasury Yields (Reuters)

Following the elections gold has taken an exceptional series of twists in the market. Reuters writes that, “gold fell more than one percent to a 5-1/2-month low on Monday, as the dollar and Treasury yields strengthened on expectations that President-elect Donald Trump will boost U.S. spending.”

The actions of gold and the market are important to watch in the coming weeks because of a looming interest rate hike in December.  As the market continues to bet on interest rates being raised at a faster pace, gold will continue to be a place to monitor.

Why President Trump Will Fumigate the Fed (Mises Institute)

Tommy Behnke, a former press assistant for the Rand Paul, wrote in to Mises Institute to express optimism for what could be on the horizon for the US central bank.  Behnke writes, “Trump’s election has given hard money advocates the most hope in over 30 years that our nation’s failed monetary policy will be reformed.”  The former Paul press worker also elaborates exactly what aspects of the Trump administration will take aim with the Fed.

“Mixed with the current hawkish wave that is already percolating in the veins of some FOMC members, Trump’s future appointments can have a huge impact on the central bank’s immediate decision-making. One can only hope that the president-elect will stick to his guns and do the right thing.”

As even Jim Rickards has highlighted multiple instances, there are two open Board of Governors seats on the Fed currently.  If it is left to a Trump vs. Fed to fill the seats, the policy out of the central bank could take a more hawkish direction.

Bonds Sell-Off Continues as Investors Bet on Rate Rise (BBC)

The jolted selling of bond markets that began last week following the Trump election has continued onto week two.  It appears that the trend will continue further – with no signs of stopping.  “There are signs that higher bond yields and the knock of a stronger US dollar are having a domino impact, taking down the weakest risky assets first, before moving on to the next,” said Deutsche’s global co-head of foreign exchange, Alan Ruskin.

Watching the global bond market and how investors might react can give further backing to an expectation that Trump might trigger inflationary policy, speed the pace of interest rate rises.

Oil Prices Under Pressure from Supply Concerns (Wall Street Journal)

After considerable belief that OPEC leaders, set to assemble this month, would enact oil production cuts – following the Trump election all signs are pointing to a failed effort. As of today oil has fallen to a three-month intraday low in prices.  

The Wall Street Journal cited, “That narrative has finally run its course. Finally, no one believes OPEC will get it together,” said one editor of a leading energy trade publication.

The actions of OPEC were once considered market movers, but after the latest news that no real negotiated deals had been made it appears to be simply noise within a wading oil sector.  For now, it appears that lower oil prices will continue throughout the coming months.

And just for fun…

Until next time, we’ll stay tuned to the stories that will matter to you.


Craig Wilson, @craig_wilson7
for the Daily Reckoning

Ed. Note: Sign up for a FREE subscription to The Daily Reckoning, and you’ll receive regular insights for specific profit opportunities. By taking advantage now, you’re ensuring that you’ll be set up for updates and issues in the future. It’s FREE.

The Daily Reckoning