Morning Market Update June 27: Taking a Deep Breath

June 27th, 2013 by

Global markets seem to have finally read the part of Fed Chairman Ben Bernanke’s press conference where he said ” if you draw the conclusion that I’ve just said, that our policies—that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion because our purchases are tied to what happens in the economy. “

Precious metals are trending in line with yesterday’s levels, as bond markets and stock markets take a deep breath and realize that just maybe they were overreacting a bit. 10-year Treasuries have settled in around the 2.5% mark, and other bonds are beginning to stabilize.

Stocks on Wall St. opened higher, as the S&P 500 seems set to post its best three-day rally since early January.  This is due to a gaggle of dovish Fed officials making cooing noises at the market to calm it down. Economic news today was good, but not so good as to startle the market into thinking the Fed’s bond buying binge will end any time soon.

Consumer spending in May wiped out April’s 0.3% drop, posting a mirror-image 0.3% gain. Personal incomes were reported to have risen 0.5%, and the National Association of Realtors released figures showing that pending sales of existing homes hit the highest level since December 2006. Buyers are jumping in now, as mortgage rates are starting to rise..

First-time jobless claims last week dropped by 9,000 applications to 346,000 newly unemployed, about in line with estimates. The four-week rolling average of first-time claims was down 2,750 to 345,750.

In Asia, Chinese stocks halted their downtrend after hitting multi-year lows yesterday. Markets closed essentially flat, as Chinese banks realize that the central bank is serious about no longer funding “informal” loans and speculative behavior with an easy money policy. Interbank loan rates and liquidity squeezes are starting to moderate as banks clean up their act. Hong Kong stocks were up 0.5% a they recover as well.

The Nikkei ended up almost 3% in the best day in two weeks, as the yen weakened past 98 to the dollar. The rupee halted its suicide dive today after reports that India’s current accounts deficit narrowed more than expected, on increased exports and decreased imports. India is the world’s largest importer of gold, and the government has implemented import taxes and restrictions on the sale and import of gold in an effort to combat their high CAD.

In Europe, stocks finished slightly up, but the euro is still hovering at the 1.30 mark. German bonds recovered somewhat, but the recent global market scare made Italy’s more recent bond sale cost more than normal.

Stocks may see more positive action tomorrow, as it is the end of the month, and the end of the quarter, and fund managers are busy readjusting allocations and doing a bit of window dressing to make things look spiffy for investors in the quarterly report.

Sales of silver coins in the West is still showing strength, with the U.S. Mint set to break annual records. More attention is starting to be paid to the all-in costs of mining precious metals, as market prices have spent several days at or below the operating costs of many mines.

by David Peterson