It was a month of records in the global financial markets in November.
New, emerging macroeconomic developments were thrown into the mix; driving commodity prices sharply lower while a weakening data docket in the East continued the consolidation of the ongoing bear trend.
In the commodity markets, crude oil posted its biggest one- month loss in two years, closing at five-year lows below US$70, while gold recorded its third consecutive lower monthly closing in four years.
In the currency markets, the euro, Australian dollar and Japanese yen all remained under pressure to close last month at multi-year lows. With so much red across these various asset classes, the common underlying theme has been the rampant run of the greenback.
The US Dollar Index recorded its fifth consecutive month of higher closings to take the index to its highest closing in eight years at 88.35. Our earlier target of 88.70 before the year-end is within touching distance and is likely to fill within the early weeks of this month. Fundamentally, the US dollar had a mixed month in November – the two most important components, employment and GDP, which form the backbone of the US recovery, were in contrast.
The US non-farm payrolls report showed that only 214,000 new jobs were added in October, below the expected 235,000.
Encouragingly, unemployment fell to 5.8 per cent, from 5.9 per cent, on the back of an improving labour force participation rate which improved to 62.8 per cent from a previous 62.7 per cent. The figures fall largely in the range of the 2014 average (228,000), but still lack the necessary traction for the Federal Reserve to conclusively lean towards higher interest rates just yet.
Giving ammunition to the Fed, however is the recent growth figures. Third-quarter US GDP reading came in at 3.9 per cent, trumping expectations at 3.3 per cent. Personal consumption, the main component of the figure, improved to 2.2 per cent from an expected 1.9 per cent.
Barring a harsher winter, the upward traction in US growth is expected to continue as underlined by stronger consumption and improved US manufacturing data, which improved to 59.0 in October.
With the United States the only bright spot among the G7 nations, the upward trend in the US dollar is set to continue through the new year, with the next resistance for the US Dollar Index falling in the channel between 89.50 and 90.00 levels.
The gains in the greenback over the course of the month, coupled with weakening fundamentals from all other corners of the globe, have continued to weigh down the prospects of the currency majors.
The Australian dollar and the yen were the worst performers against the greenback last month, dropping 2.9 per cent and 5.2 per cent, respectively. The yen has been slammed to eight-year lows on the back of aggressive monetary policy from the Bank of Japan. The Australian dollar fell to four-year lows on slower than expected growth figures from China. With the data from China expected to maintain its sluggish tone this month along with under-pressure commodity prices, the downward trend in the Australian dollar looks set to continue.
Commodity markets were also not spared last month, with several new developments dragging markets lower and keeping volatility higher.
Crude oil was the biggest loser on the month, shedding $14 per barrel to close at $66.15, its lowest closing in five years. The recent vote to maintain current Opec output piled pressure on the West Texas Intermediate crude contract – in the two days since the announcement, the contract has shed more than 10 per cent. The bearish momentum is set to continue, but with the bulk of the selling pressure now factored in, we expect strong support to form at $60.50.
And finally, gold remained under pressure following the make-or-break Swiss referendum from this past week. This past Sunday, Swiss voters went to the polls and voted against raising the minimum gold reserve requirement for the Swiss National Bank. The referendum called for the SNB to raise its gold reserves to a revised 20 per cent of total reserves, from the existing 7.8 per cent. With the vote downed and the status quo maintained, gold closed the month below $1,200, and we expect the precious metal to hold below this level through the last month of 2014.
Gaurav Kashyap is the head of futures at Alpari Middle East
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