Rate Hikes Fears After BOE Minutes: Morning Market Update Aug 20

August 20th, 2014 by

Stock markets in Europe and the U.S. are down, after the minutes from last month’s Bank of England policy meeting revealed that two of the nine members voted for an interest rate increase to start this month.

Analysts now believe that the UK will certainly be the first major economy to raise benchmark interest rates, which may put more pressure on (or give an excuse for) the Fed to follow suit.

This news puts more attention, if that’s possible, on the release of the Federal Reserve Open Market Committee minutes from last month’s meeting, due to be released this afternoon.

Both Fed Chairman Janet Yellen and European Central Bank president Mario Draghi will be speaking at the global central bankers’ conference in Jackson Hole Wyoming on Friday.

Gold spiked downward in Europe on the BOE news, but recovered to near unchanged by the New York open. A strong dollar rally continues today, which makes gold more expensive in foreign currencies. As the stronger dollar buys more compared to other currencies, it takes fewer of those dollars to buy an ounce of gold. The dollar hit an 11-month high at 6:30am in New York before easing slightly.

Silver finally caught a corrective bounce this morning, making up for lagging behind the other metals recently.  Platinum has eased modestly lower, likely in sympathy with the profit-taking and consolidation that is continuing in palladium today.

no-miningSpeaking of platinum, Zimplats has announced the complete closure of its largest platinum mine, effective immediately. The Bimha mine, which suffered a collapse last month that cut off access to half of its resources, appears too unstable to allow production in the remaining half of the mine. Zimplats said that production would be halted to ensure worker safety, while engineers devise a way to rebuild the mine around a fault line. The work to open the collapsed half of the mine had been estimated to take between four and five years, and this new development means that the entire mine will probably be offline for longer than that. The closure of the Bimha mine takes 70,000 oz of platinum off the market annually, estimated at $100 million worth of the metal at current prices.

The Ebola epidemic in western Africa is affecting supply of many resources, including gold, as mining companies close up shop and evacuate workers to avoid the deadly disease. The nations suffering from Ebola are highly dependent on mines for their economies, so the closures are adding to the woes of local governments.  Over 1,200 people have died so far, as villagers refuse treatment due to distrust of Westerners and their own governments.

Wall St. opened lower on news that Target and Lowes both revised earnings downward, as well as interest rate jitters. The release of the FOMC minutes at 2pm will be a market mover.

China Debt ConceptShanghai stocks were lower, as news hit that the Bank of China, the nation’s fourth-largest bank, has more than doubled the amount of money set aside to account for bad loans. The bank now has $2.1 billion set aside. This shock was accompanied by analysts saying that the worst is yet to come for China’s banking sector.

In international news, fighting has intensified in Ukraine, as the government seeks to cut off a major supply line between Russia and the rebel stronghold in Donetsk. Street fighting is reported in the other remaining rebel-held city of Luhansk.

Israel conducted airstrikes aimed at the military leader of Hamas today, in response to rocket attacks launched from Gaza against Israel. Reports indicate that Mohammed Deif’s wife and daughter were killed, but have no news on the condition or whereabouts of the leader himself.

Neither of these developments have had much response from the markets, which are more worried about their “punch bowl” of near-zero interest rates being taken away. The abnormally low rates have allowed a surge of takeovers and stock buybacks, but have not been used for capital expenditures, which would help more in the long term.

Thursday will be a heavy day for economic news. The Chinese flash manufacturers PMI will be release tonight, then in the morning we get the flash composite PMI figures for Germany, France, and the EU as a whole. The retail sales report is due in the UK, which will get extra scrutiny after today’s BOE minutes. In the U.S., we have first-time jobless claims, which are almost always good for a market reaction. Other news due is the Philadelphia Fed manufacturing survey, existing home sales, and leading economic indicators.

 

by Steven Cochran

Gainesville Coins Portfolio Tracker and Financial News