Global stock markets are in the red this morning, and precious metals and other safe haven assets are being bid after a Ukrainian Su-25 jet fighter was shot down yesterday.
At 11am, gold is over $1,300, silver is near-flat after an early morning spike, trading at $20.80, and platinum and palladium are both up nearly 1%. Platinum is attempting to get back over $1,500 an ounce, and palladium is higher at $880, after briefly breaching the $890 level this morning.
Ukraine accuses Russia of the deed, and the U.S. swiftly moved to impose trade sanctions against Russia, aimed at banks, oil, and natural gas companies. Targeted Russian companies are also banned from using U.S. financial markets for loans exceeding 90 days.
These are the first sanctions imposed on Russia that have any real bite, and have naturally drawn condemnation and threats of reprisals from the Putin government. Russian stocks hit a six-week low and the ruble dropped to a two-week low on the news. The Japanese yen, Swiss franc, and German and U.S. bonds all saw safe haven demand. The yen is at a five-month high versus the euro. Yields on the 10-year treasury note fell below 2.5% this morning, a seven-week low.
The dollar is trending just under yesterday’s close, in a volatile range. Yesterday was the first time in a month it had closed over 80.5 on the DXY index. Crude oil prices continue to edge back up, and the price of West Texas Intermediate is closing in on Brent crude, $102/bbl compared to $107/bbl.
European Union diplomats are meeting today to discuss imposing more sanctions, but any compunction to do the right thing is tempered by the reality that the EU has allowed itself to become so dependent on Russian energy exports, that they have lost a good deal of autonomy when dealing with Russian aggression.
The Gaza Strip is seeing more bloodshed, as Hamas rejects the ceasefire talks between Israel and the military government of Egypt. The present Egyptian regime staged a coup against the civilian government led by the Muslim Brotherhood, an extremist group that was allies of Hamas. This leads Hamas to view the military government in Cairo as an enemy, and refuses to let it negotiate with Israel on its behalf.
Hamas fighters tried to tunnel under the Israeli border to attack a nearby Jewish settlement, but emerged short of their target. IDF warplanes promptly conducted airstrikes on the exposed fighters, killing at least one. Three rockets were fired at Israel today from Gaza, but were brought down by the Iron Dome anti-missile system. Over 1,300 homemade rockets have been fired at Israeli cities in this latest offensive.
Back in the U.S., first-time jobless claims unexpectedly fell. 3,000 fewer people were fired last week than was expected, for a total of 302,000 pink slips handed out. Analysts predicted the number to rise by 5,000.
This good news was countered by a collapse in housing starts for June, which plummeted by 9.3% to a nine-month low. Gains in other parts of the nation were wiped out by a large reduction in housing starts in the southern U.S.
Wall St. opened sharply lower this morning after edging to new highs yesterday, due to the announced sanctions against Russia. Many large financial and oil companies have substantial exposure to the Russian energy market. European markets were also down on the worries that Putin’s threatened retribution could fracture the fragile EU economic recovery. Bloomberg quoted Markus Wallner of Commerzbank as noting that investors are taking profits every time stocks edge up, because “they don’t trust the market.”
President of the Dallas Federal Reserve, Richard Fisher, told an audience yesterday that he believed that tapering the Fed’s money printing was not enough. He called on Yellen to stop reinvesting the bonds that were purchased through quantitative easing, and let the Fed’s more than $4 trillion balance sheet shrink as individual bonds mature.
He stated that he believes that inflation will rise sooner than expected, and pierce through the “tolerance level” of 2%. Comparing the job of fighting rising inflation to hunting ducks, he said the Fed has to aim at where it is going, not where it is now. Fisher called for the first hike in the near-zero benchmark interest rate the Fed charges banks to occur early next year, or even late this year, depending on economic forecasts.
The new administration of Narendra Modi in India is finding out how hard it is control the trade deficit in a nation that has no oil reserves and a huge population ravenous for gold to guard against inflation. Despite the government leaving gold import taxes at 10% and keeping severe import restrictions in place, legal gold imports into India rose by 65% in June, causing the trade deficit to widen to an 11-month high. $3.12 billion of gold was imported into India last month. Demand is only going to increase as the fall wedding and festival season approaches.