Morning Market Update August 1: Money Presses Running

August 1st, 2013 by

After yesterday’s expected turmoil over the FOMC meeting, gold opened in New York almost exactly where it has the previous two days. This is a tight range!

The Fed said yesterday that QE is continuing for now, and the European Central Bank and Bank of England today said their own loose policies will remain in place. Japan, of course, continues to implement the largest quantitative easing operation in history.Reuters quoted Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey, as saying “Bottom line, it’s still free money everywhere – whether it is in the U.S., the Bank of England, the ECB – they are all saying the same thing and everyone is kind of loving it.”

Elsewhere in domestic economic news, the ISM manufacturing index blew the doors off estimates and came in at 55.4 for July. This is up from 50.9 in June and beats analysts estimates of 52.0. Any reading above 50 signifies expansion in manufacturing. First-time jobless claims fell last week, as 19,000 fewer people lost their jobs than in the week prior. New claims were reported at 326,000 for the week ending July 27, the lowest level since January 2008. These late July numbers can get skewed wildly, however, as auto plants close for retooling, then reopen, and schools close for summer vacation.

The ISM data spooked gold, which dropped on the news, as the dollar got only a small boost. The spectre of a September taper by the Fed still haunts the precious metals market. Stocks loved the news, opening strongly in positive territory with the S&P 500 breaking the 17,000 mark for the first time.

In Asia, news that the official Chinese PMI for July was 50.3 lifted not only Chinese stocks, but Japanese, Hong Kong and European stocks as well. Analysts had expected a drop back into contraction of 49.9. The HSBC PMI report however, came in at 47.7, the third decline in a row. The HSBC report focuses more on smaller companies, which have been hit by the government’s war on gray market lending and moves to close down the most polluting and money-losing operations. The Nikkei jumped 2.5% on the Chinese news and a weakening yen, and Hong Kong stocks rose 0.9%.

In Europe, the good news from China wasn’t the only lift for stocks. The Markit Eurozone PMI posted its first expansion in two years, coming in at 50.3. The improvement was broad-based, as Germany, France, Italy, Ireland, Austria and the Netherlands all saw improvements in manufacturing. The Markit UK PMI rocketed to 54.6, the best reading since February of 2011.

Gold ETFs have not had any outflows for the last six trading days, and have in fact added 1.6 tons to inventory. If this holds, it will be positive for the physical gold market, and help offset the virtual ban on gold imports that the Indian government is trying to make stick.

Despite the usual summer volatility, fueled by thin volumes caused by summer vacations, gold is basically trading once again in a tight range. September will bring back the traders, bring us one month close to the start of the Indian wedding season in November, and is the supposed “D-Day” for the Fed to start reducing bond purchases. The precious metals markets will likely be on tenterhooks until then.

 

by David Peterson