The dollar hit a 7-year high against competing currencies as the DXY index rose about 0.5% yesterday, closing at 87.339. The bullishness of the dollar is coupled with weakness in crude oil, as West Texas Intermediate continues to fall to a two-year low, and energy stocks generally slumped. Brent crude fell $1.60 to $84.26 while WTI crude touched below $76 overnight after closing down $2.23 at $78.31. This represents nearly a 30% decline in oil prices since June of this year. The 10-year Treasury yield rose 1 basis point to 2.34% as the stock indices remained largely flat, though the Nasdaq did rise modestly to close at a 1-year high.
Yesterday in the Markets
Economic News Affecting Gold
The big news on the financial markets was the revelation that JPMorgan Chase is setting aside an additional $1.3 billion to its fund to cover fines and legal expenses relating to criminal investigations into the bank’s role in currency manipulation. This “fraud fund” has swelled to $5.9 billion for JPMorgan alone; Citi Group made a similar announcement last Thursday that it was cooperating with the Justice Department and regulators to pay hefty fines for manipulating markets. Reading between the lines of these big bank’s preemptive “guilt taxes,” so to speak, allows one to see that such public behavior on the part of financial institutions and regulators is no different than the bold disregard for conflicts of interest showed in the case of the secret Goldman Sachs tapes.
The European Commission cut its growth outlook for this year’s Eurozone GDP from 1.2% to 0.8%, and also lowered expectations for 2015 from 1.7% to 1.1%, on chronically low inflation. To try and “heat up” economic activity and drive inflation, the European Central Bank is relying upon its ZIRP-style slashing of its benchmark lending rate to 0.05%. Stagnation in Germany combined with burdensome debt in several Mediterranean countries is still dampening market activity in spite of the record-low rate. Deflation remains a persistent problem, and while the unprecedented stimulus measures of the ECB speak to the frailness of the recovery of the world’s largest economic entity, many policymakers and pundits are also blaming the lack of healthy growth on the sanctions the EU imposed on one of its largest trading partners, Russia.
With silver prices repeatedly breaking through recent lows, October sales of the American Silver Eagle 1 oz bullion coin surged to 5.79 million ounces sold. Year-to-date sales total 38,041,000 coins, or nearly 1,200 tonnes of pure silver. This strong showing on the price dips in silver have spiked ASE sales within striking distance of last year’s record-setting total of 42,675,000 coins. If November and December see robust demand for silver bullion, the Mint could certainly see its all-time sales record of its flagship silver coin bested just one year later.
Geopolitical News Affecting Gold
In addition to a supply glut and some softness in global demand, another contributing factor to sliding energy prices is the Saudi’s decision to cut prices for oil deliverable to the U.S., hurting sales from other sources, while raising prices elsewhere in Europe and Asia. Many of the major oil producing countries are focusing on the U.S. market, where the shale boom and considerable output from domestic producers has made it the largest source of new supplies. Saudi Arabia hopes to undercut its competitors vying for a portion of U.S. oil consumption; meanwhile, American consumers are getting a serious break in energy prices ahead of the holiday season. After the Dow Jones crossed into all-time high territory last week, the decline of energy stocks dragged the index down slightly in the red.
Wednesday sees the announcement of 3-year, 10-year, and 10-year Treasuries, while two important indicators of economic activity, the non-manufacturing ISM and the services PMI, will also be released. The ADP Employment report on Wednesday will provide a forecast for the month’s nonfarm payrolls.