Morning Market Update Feb 28

February 28th, 2013 by

The sequester takes effect at midnight amid reports this morning that it will only save half of what is promised, but the stocks just wave their hands in the air like they just don’t care. Wall St. continues the rally started yesterday, as markets around the world were generally on the upswing.

The Organization for Economic Cooperation and Development (OECD) declared that the Italian political deadlock would not affect the EU economic recovery. Bond sales seemed to confirm that prognosis, as both Italian and Spanish bond yields were down slightly after rising modestly earlier in the week. ECB chairman Mario Draghi reiterated that he would defend the euro, which helped the common currency and the stock market.

China stocks posted their largest gain in a month, propelled by gains in construction and banking. In Japan, the Nikkei posted its biggest gain in 3 weeks, making for the seventh straight month of gains.

Back in the U.S., 4th quarter GDP was revised from a 0.1% contraction to a 0.1% gain, giving a psychological boost to stocks. First-time jobless claims for last week came in at 22,000 less than last week, standing at 344,000 newly-unemployed. The government revised the previous week’s numbers up by 4,000 to 366,000, and reported continuing claims down by 6,750 to 3.07 million.

All this equity happiness has weighed on gold, which continues to trend lower after yesterday’s drop. Unless we see a rally today or tomorrow, gold is set to give back all of this week’s gains.

Reminding us of the saying “inflation is gold’s favorite food,” Peter Hug of Kitco notices another figure in the government’s revised GDP figures for the fourth quarter: The GDP inflator was adjusted to 0.9% from 0.6%, despite the flat growth. Remarking on Ben Bernanke’s reaffirmation yesterday that the benefits of QE outweigh the inflation risks, he says:

The last time someone played this game was in 1978 and more recently in 2000, with Greenspan. 1978 ended with inflation well in the teens and interest rates at 18%. We all know how Greenspan’s game ended.

We’ll leave you with this interesting chart from the fine people at BusinessInsider:

gold under fed chairman-businessinsider
by David Peterson