Update: Gold breaks lower, tests $1,265 level as S&P 500 hits new high.
Better than expected outcomes in elections in the European Union and Ukraine over the weekend have combined with upbeat economic reports in the U.S. to promote a risk-on day in the markets.
Precious metals except palladium sold off as the U.S. markets returned from the Memorial Day holiday to a Europe that hadn’t dissolved into chaos after all, and everyone jumped into stocks. Gold touched a three-week low
The “Chocolate Billionaire,” candy magnate Petro Poroshenko, handily won Sunday’s Presidential elections in Ukraine, in a contest where the two neo-nazi candidates together received less than 2% of the vote. A major concern in eastern Ukraine was the fear that neo-nazis were running the new government in Kiev, and were determined to purge ethnic Russians. These fears have now apparently been proven groundless. The pro-Russian separatists received another blow when Ukrainian Army forces retook the Donetsk airport, killing 50 rebels.
Elections in the EU came out better than expected for the establishment, with the present ruling coalitions in Italy and Germany winning handily. While Euroskeptics made gains, especially in France and the U.K., it was apparently not as much as had been feared. More good news for European markets came from ECB president Mario Draghi, when he said yesterday that “more pre-emptive action may be warranted” by the central bank.
In the U.S., durable goods orders were up 0.8% from last month’s 3.8%, mainly on increased defense spending, and inventory stuffing. Inventory levels are now at all-time highs, as companies keep producing to make their reports look better. The service sector grew, with a flash services PMI of 58.4 compared to 55.0 in April, and consumer confidence rose to 83 from 81.7.
All is not sunshine and roses, however. Chinese fishing vessels, rumored to have numbered more then 40 boats, surrounded, rammed and sank a Vietnamese fishing boat in a disputed area of the South China Sea. Rhetoric from Beijing is becoming increasingly hostile towards Vietnam, calling their protestations “ridiculous.” Back in Ukraine, border guards were engaged in a firefight with armed men trying to cross the border from Russia.