Morning Market Update June 3

June 3rd, 2013 by

Gold is modestly up this morning on a weaker dollar and some correction after Friday’s selloff. Part of the drop in precious metals, as well as a steep drop in U.S. stocks moments before the closing bell, can be attributed to end-of-month book squaring and profit taking.

The HSBC Chinese manufacturing PMI for May showed a drop into negative growth, falling 0.6 points to 49.2. This led to Hong Kong and Chinese markets continuing their slide, each closing slightly down. The reaction was much worse in Japan, where the Nikkei dropped 3.7% to a six-week low, as exports were recorded as falling for most Asian countries in May.

The European markets rallied a bit on some “not so bad” news – The Eurozone composite PMI for May clocked in at 48.3. This still signifies contraction, but is substantially up from April’s 46.7. The news also helped the euro, but by the end of trading, the common currency had given up all its gains.

The dollar is down again today, while oil has recovered to where it stood before the recent OPEC meeting.

In the U.S., Wall St. was set to open higher after Friday’s dip, as the Markit manufacturing PMI was revised upward to 52.3 from the flash reading of 51.9 for May.

However,  the ISM Manufacturing Index, expected to remain at April’s 50.7, alarmingly dropped to 40.0, signalling economic contraction. Construction spending rose 0.4%, half of what was expected. This fresh data should ease worries in the market that quantitative easing in the U.S. will end in the near term.

The prospect of the Fed reducing or ending the $85 billon a month of bond purchases that is generally seen as fueling the stock market has global markets of all sorts on edge. Stocks, bonds, currencies, base commodities and precious metals are all moving on the slightest data that may presage a smaller government involvement in buying Treasuries and mortgage-back securities.

With riots spreading in Sweden and Turkey, the escalation of the civil war in Syria, and wildcats strikes in South Africa having now led to the shooting death of a miner, markets should be jittery, and there may be some safe haven demand for gold should things worsen.

by David Peterson