Gold is slightly firmer in New York this morning, after a drop on the Asian open. Physical demand was muted due to Hong Kong markets being closed due to a typhoon, and the Japanese markets were closed for holiday.
The Fed’s schizophrenia calls to mind the ’80s hit song “You Spin Me Right Round, Baby (Like A Record)”. In the press conference Wednesday afternoon when the Fed announced no taper for September, Fed Chairman Ben Bernanke said that, due to mixed economic signals, he saw no tapering happening for the foreseeable future. Stocks and precious metals took off on a huge rally Wednesday and Thursday. Then St Louis Fed president Ballard declared Friday that he saw a good possibility of tapering next month (!). Then this morning, NY Fed president Dudley says the economy still needs help as Atlanta Fed president Lockhart says that employment numbers are still too weak.
Now, stock markets and commodities don’t know what to think. Traders quickly locked in profits Friday, leading to sharp declines in equities and precious metals, with short term traders afraid to move either up or down. Adding to the uncertainty is the possibility again of a government shutdown, as the Republicans try to use the budget negotiations to do what they’ve been unable to do legislatively in Congress – defund Obamacare.
Wall St. is lower, with the dollar choppy near Friday’s closing levels. The euro has gained on positive economic news in the EU, as well as Angel Merkel’s party coming out ahead in last weekend’s elections in Germany. This ensure Merkel a third term as Chancellor.
The Markit EU business activity index for September came in at 52.1, the highest in over 2 years. August’s number was 51.5. Any reading over 50 denotes expansion – good news for a region where unemployment in the periphery is dragging their neighbors down.
In China, the HSBC manufacturing PMI for September was 51.2, compared to 50.1 in August. This month’s reading is a 6-month high.
Despite the good news from Europe and China, the economic uncertainties in the US will be the main driver in the near future.