First-time jobless claims coming in far lower than expected, plus a surprise increase in industrial production in the US has not been enough to keep stocks from continuing a sell-off.
A vicious bond sell-off in sovereign debt for the Mediterranean EU countries is threatening to drag the entire continent down. European stocks are sharply lower for yet another day, hitting a 13-month low.
In contrast to Greece/Italy/Spain, German 10-year bunds are in high demand this morning, with the yield dropping to 0.77%, and the 10-year T-note in the US yielding 2.08%. The yield on the Greek 10-year note is up nearly 2% in 48 hours, with the yield at 8.94% this morning.
Gold saw a tiny bit of back-filling at the COMEX open this morning after holding on to gains overnight. Silver is slightly lower after resuming an extremely tight trading band yesterday. Platinum lost ground overnight, while palladium is notably lower.
The dollar managed to pull out of its decline in European trading, getting a slight pop to barely poke its nose above unchanged. The yen is seeing safe haven demand, while the yuan is trading at a 7-month high.
Yesterday in the Markets
If you weren’t gold, a pharmaceutical company with an inside line on an Ebola vaccine (or a maker of hazmat suits,) or the German or US bond, you had a really bad time yesterday.
Stocks were down sharply in the US and Europe, with Wall St. falling more than 3% before damage control from Washington reversed the fall. This took the form of unsubstantiated rumors that Yellen said in a private conversation last week that she had confidence in the economic recovery in the U.S.
This unsourced rumor was all it took to give panicked stock investors a little backbone, and allow the markets close only moderately in the red. The Dow, after falling more than 445 points, ended “only” 173 points down, while the S&P 500, which had been down over 3%, closed only 15 points in the red, -0.81%. The Nasdaq, helped by biotech stocks, recovered to close down less than 12 points.
As the blood ran in the streets at stock exchanges, safe haven flight into German and US treasuries increased. The 10-year German bund dropped 7 basis points to a new record low 0.77% yield yesterday. The French 10-year note dropped 9 basis points to a record, 1.11%.
The 10-year Treasury note, which has traded as low as 2.03% yield, closed at 2.15%, down 7 basis points. Yesterday was the heaviest trading day on record for Treasuries, with $777 billion traded by 2pm.
Greek sovereign debt imploded yesterday, with the 10-year bond jumped 82 basis points to 7.83%, and Portuguese 10-year bonds jumping 21 basis points to 3.28%. Italian debt rose 9 basis points to 2.39%.
Economic News Affecting Gold
Good economic news from the US is helping staunch the bleeding on Wall St, though stocks are still lower. First-time jobless claims dropped by an eye-popping 23,000, with only 264,000 people reported being fired last week. This is the lowest first-time jobless report since 2000. Analysts were expecting a tiny increase to 290,000.
Industrial output in the US was also a pleasant surprise, rising 1% in September, compared to a 02% drop in August. Analysts were expecting a 0.4% increase.
Traders are piling out of high-yield corporate debt, also known as “junk bonds.” Combined with the bear market in crude oil and global surplus, pressures could be mounting in the financial side for tar sand fracking operations.
The plummet in oil prices to four-year lows is combining with losses in palladium to put a double whammy on Russia, which has already had to dump over $11 billion in the last two weeks to prevent the ruble from falling more than it has. The Russian currency is trading at an all-time low, and companies scramble for hard currency in dollars and euros, and rich Russians hurry to exchange rubles into scarce dollars to preserve their purchasing power. This need for wealth preservation by well-to-do Russians may also explain why several private Russian banks have increased gold purchases.
Despite the pain to Mother Russia, many analysts expect Putin to be able out-last Ukraine, as winter begins. Whether he can last long enough for the EU to break under the strain of imposing sanctions against Russia is another matter. Who cries “uncle” first will affect the balance of power in Eurasia.
The bond rout in the worst-off of the EU nations pummeled the euro currency, as it is now expected that the ECB will have to go crazy with quantitative easing as soon as possible, to prevent all of Europe from going down the drain. The economy seemed to be at the tipping point before impositions of sanctions against Russia for the seizure of Crimea.
Geopolitical News Affecting Gold
Regarding relations between Russia and the EU, Putin made another veiled threat regarding nuclear retaliation for economic sanctions yesterday, as the prime minister of Finland said that the European Union needed to “remove the gloves” in dealing with Russia’s support for rebels in eastern Ukraine. NATO reports that despite Putin’s claim to be pulling troops away from the Ukrainian border (which rallied Russian stocks,) there is no evidence of any troop movements actually happening.
Adding to the unease, on both sides of the Atlantic, the second nurse in Dallas, TX that has tested positive for Ebola is reported to have flown to Akron, OH to visit her parents while contagious. The County Commission for Dallas is voting today whether to declare a state of emergency, in order to active that Emergency Management Agency to coordinate quarantine of people exposed to Ebola. This morning, an Air France jet was quarantined in Madrid’s airport on reports of an Ebola-infected passenger aboard.
If matters get worse in the US, and officials order people to stay at home for a few weeks in order to halt the spread of Ebola, the preppers who people made fun of will laughing as people madly scramble for food and supplies.
In Syria, the US has conducted 14 airstrikes in the border town of Kobani, in an attempt to prevent ISIS from totally conquering the city which rests against the border with Turkey. The situation is at the point, however, that airstrikes alone will not prevent the fall of the city and massacre of Syrian Kurds.
Tomorrow, Federal Reserve Chair Janet Yellen speaks at a Boston Fed conference on inequality of economic opportunity. US housing starts and consumer sentiment are also released tomorrow, both of which have a good chance to move markets if they surprise either to the upside or downside.