Morning Market Update July 31: “Here Comes Da Fed”

July 31st, 2013 by

Gold and silver saw a spike last night in Asian trading, as the Chinese Politburo indicates a willingness to ease fiscal policy to maintain steady growth, but GDP and payroll numbers in the U.S. have led to sequential drops all day ahead of the end of the FOMC meeting.  The press will be waiting with baited breath for Fed Chairman Ben Bernanke’s judgement of U.S. economic progress, with the favorite opinion on Wall St. being that tapering of the $85 billion in US bond and mortgage-backed securities purchases will begin in September.

One thing to keep in mind when reading the GDP number today, is that the U.S. government has changed the way it calculates these numbers to make the readings higher. Much like the abandonment of tracking unemployment by using the traditional U6 numbers, this has the effect of making the economy look better to the public.

Second quarter GDP grew at a 1.7% rate according to the government, beating expectations of 1.0%. However, the first quarter GDP report of 1.8% was revised down to 1.1%, so the same may happen here. ADP reports that private payrolls increased by 200,000 in July, against an expected 180,000.  ADP numbers tend to come in above the official numbers, but today’s report is still taken as a good sign.

The news helped pull the dollar out of a funk, as it spiked upwards, but it couldn’t sustain the boost, and soon fell back to previous levels. U.S. stocks however, took the news and ran higher, building on the 0.6% boost from the opening that it granted.

In Asia, the Chinese government eased money supply slightly and signaled commitment to steady growth as it continues to reign in excessively risky behavior in the market and roots out corruption in the public sector. This calmed the mainland market, which ended up nearly .2%. Hong Kong stocks lost on weak earnings reports, falling .32%, but ended July as the best month since last September. The Nikkei was down 1.45% on Fed fears and disappointing earnings.

Things seemed a bit brighter in Europe, despite the nervousness over what the Fed and European Central Bank will announce over the next two days. Composite Eurozone unemployment fell for the first time in more that two years, powered by rising employment in Germany and Italy. Euro stocks ended up .28%.

Gold was expected to break its tight trading range today, and has done so, with a retest of the $1305 level. Now we see if this is pre-pricing in Bernanke’s press conference or perhaps another data leak on the Fed’s part ahead of the FOMC announcement, or if “Uncle Ben” will affect the price this afternoon.

by David Peterson