Morning Market Update June 14: Catching Their Breath

Strengthening stocks in Asia and Europe, plus a stabilizing dollar pushed gold lower in Europe overnight, but the yellow metal sharply recovered to near yesterday’s highs on the New York open. Silver, which had held steady overnight, spiked to $22.68 at the New York open before slightly settling. Gold is also seeing a little bit of safe haven demand as the U.S. accused the Syrian government of using chemical weapons against its own citizens, and pledged to supply small arms and supplies to the rebel forces. This escalation in Mideast tensions saw oil futures hit a three-week high.

The platinum group metals have seen serious pressure this week as bets on imminent mining strikes in South Africa have not materialized.

It seems today that global equity markets have caught their breath after this week’s freakout over a possible reduction of quantitative easing in the U.S. Bonds are also recovering, even in troubled southern Europe.

In Asia, the Nikkei reversed its large bear movement with a 2% gain on Friday, but still closed the week almost 15% off April highs. Stocks in Hong Kong finally caught a tailwind to pull up from nearly 8-month lows. Chinese stocks finished the day slightly up, hampered by recent constriction of the money supply by the government.

In India, the rupee has recovered from recent notable losses. We might now get a better idea of just how effective the snap increase of gold import taxes implemented this week in New Delhi is affecting physical gold demand in the world’s largest consumer of the yellow metal. Some analysts were pointing towards the weak rupee as a larger factor in curbing gold demand than the new tax increase.

Euro stocks gave up early gains to finish flat, on news Euro employment dropped. They did, however, break the downward trend of this week. The euro remained above 1.33 against the dollar.

The dollar hit another four-month low yesterday, but has recovered to just under 81 on the DXY. The yen is showing good strength against the dollar, as it seems to have usurped, at least temporarily, the greenback’s usual status as a safe haven currency.

In the U.S., wholesale prices rose for the first time in 3 months in May, showing a 0.5% increase. Analysts had expected a fraction of that, estimating the rise at 0.1%. This contrasts with the drop of 0.7% in April, the biggest drop in wholesale prices in three years.

The current accounts deficit for the U.S. is reported to have risen 3.7% in the first quarter.

Industrial production remained flat in May, against expectations of a 0.2% rise. The drop in industrial production in April was revised to a smaller 0.4% loss. Consumer sentiment in the U.S. dropped to 82.7 this month from a nearly six-month high in May, as the public tempers its optimism about the economy.

Markets this week have been moving on low volumes, which is increasing volatility. The focus is now on the Federal Reserve Open Market Committee meeting scheduled for next Tuesday and Wednesday, and Fed Chairman Ben Bernanke’s press conference afterwards.

by David Peterson

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