Strong Consumer Confidence Data Boosts U.S. Dollar

The U.S. Dollar rose on Tuesday in response to a number of events including increased demand for risky assets, strong economic data, Fed Chair nominee Jerome Powell’s nomination testimony and optimism over U.S. tax reform. North Korea’s latest missile launch had little immediate impact on the markets although investors are waiting to see how the U.S. responds to the news.

U.S. Economic News

Tuesday’s minor reports included the Goods Trade Balance which came in worse than expected at -68.3 Billion. Traders were looking for a read of -65.0 Billion. Preliminary Wholesale Inventories dropped 0.4%, better than the 0.5% estimate. The previous report was revised to 0.1%.

The Home Price Index came in below expectations at 0.3%, below the 0.6% estimate. The S&P/CS Composite-20 HPI rose 6.2%, beating the 6.0% forecast. The Richmond Manufacturing Index improved to 30 from 12, well above the 14 estimate.

The major news was the Conference Board Consumer Confidence report. It came in at 129.5, crushing the 123.9 estimate and 126.2 previous month’s read.

Fed News

U.S. Federal Reserve Chair nominee Jerome Powell testified before the Senate Banking Committee on Tuesday, providing little ammunition for traders by sounding like his predecessor outgoing Fed Chair Janet Yellen.

During his Senate confirmation hearing Tuesday, Powell strongly hinted that the likelihood of a December rate hike is growing, however, he did not commit definitely to it. In his testimony, he also indicated that traders can expect more of the same from the Fed under his leadership, even though there is a new person in charge.

“The case for raising interest rates at our next meeting is coming together,” Powell told the Senate Banking Committee. “I think the conditions are supportive of doing that.”

FOMC Member William Dudley offered his support for the introduction of public reporting of Treasury transactions. FOMC Member Patrick T. Harker gave a speech on financial safety for the aging population.

Tax Reform News

On Tuesday, the Senate Budget Committee advanced the Republican tax bill. Traders are now bracing for a full Senate vote on November 30. Goldman Sachs predicts a 50 percent chance of tax reform is likely this year and an 80 percent chance it gets done in 2018.

Gold

Gold eked out a small gain despite the launch of a ballistic missile by North Korea into the Sea of Japan. Gains were limited by increased appetite for risk as U.S. equity markets soared to new all-time highs on optimism over tax reform. The news also drove Treasury yields higher, underpinning the U.S. Dollar which made dollar-denominated gold a less-desirable asset.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil retreated on Tuesday, led by doubts OPEC and Russia will agree to extend the output cut program beyond the March 2018 deadline. The extension to cut production, trim the global supply glut and stabilize prices has been largely priced into the market so the inability to agree upon an extension could be extremely bearish for the markets. According to analysts, traders are whispering that Saudi Arabia and Russia are not on the same page and that the November 30 OPEC meeting could end without a formal decision to extend the production cuts.