Positive manufacturing data yesterday pressured precious metals and stocks, as fear heightened among traders that the Fed would begin reducing the “market steroids” of quantitative easing. These fears spurred year-end profit-taking. Gold, which was supposed to already have priced in tapering, sank to the lowest level since July. There had been some year-end selling of precious metals before the PMI report, primarily to take recent losses and apply against capital gains in equities for tax purposes.
The Nikkei is the only major stock market to see a boost, as Tokyo announces another $53 billion money injection. Despite that, the yen rose from a 6-month low against the dollar and a 5-YEAR low against the euro, on safe haven fears over U.S. tapering.
The dollar is lower today, against strength in the yen and euro. The pound sterling rose for the 5th straight day, as UK construction came in roundly above expectations. Added to yesterday’s reports, it seems the UK will be the first major nation to scale back ultra-low central bank interest rates. The pounds is now near a 2-year high against the dollar.
In other currency news, it was announced that the Chinese renminbi (yuan) is now the second most-used currency in international trade, supplanting the euro. This is a result of a concerted effort by Beijing to establish currency trading hubs in major centers such as London, as well as signing bilateral agreements between trading partners to conduct business denominated in yuan, bypassing the dollar.
While it is unlikely that Bernanke will taper the Fed’s $85 billion a month in bond-buying as his last act, the longer the Fed waits to start bringing fundamentals back into play in the markets, the more its credibility is tarnished. Many economists are blaming the Fed’s “money printing” and artificially low interest rates for forcing all money into the stock market, and blowing a bubble.