After WTI and Brent crude each gained yesterday, both benchmarks were down over 2.5% around 10 am on Wednesday morning. The seemingly endless slide for oil has finally prompted OPEC (and even U.S. shale producers) to cut their demand projections for 2015. Energy shares responded poorly to the news from OPEC as the prospects for a global economic slowdown seem to ossify by the day.
Yesterday in the Markets
Tuesday’s closing numbers:
Economic News Affecting Gold
Stocks plunged early in trading on Tuesday before staging an afternoon rally that left the Dow Jones and S&P 500 barely below unchanged by the closing bell. Buoyed by tech shares, the Nasdaq actually posted gains of about 0.5% while the dollar eased a bit, dropping below 89.0 on the dollar spot index. The uncertainty in stocks and the weakness in crude oil drove some safe haven demand for hard assets: each of the precious metals rose by more than 1% on Tuesday, with gold and silver advancing over 2% and 4%, respectively. Treasury yields fell slightly, as the 10-year note added 1 basis point to 2.21%.
Eurostocks rebounded Wednesday morning after Greek markets plummeted to their ostensible bottom on Tuesday, sparking a massive sell-off that left the country’s ASE stock index 13% lower after yesterday’s trading. The rest of the European markets posted gains, however, increasing the likelihood that the EU will be able to absorb the blow of Greece’s decline.
The big news this week has been the conclusion of Senate hearings regarding the “aggressive interrogation” (read: torture) techniques employed by the CIA in its efforts to stamp out terrorism and topple Saddam Hussein’s regime in Iraq. The Senate found that not only were the interrogation tactics used a violation of U.S. codes governing the handling of detainees, but that its use of waterboarding and other extreme forms of interrogation did not tangibly help in the fight against terrorist groups.
While this story will undoubtedly have legs to carry it for at least the next week or so, and forces various government agencies to confront the ethics of American detainment programs, it is worth noting that much of the Senate’s hang-wringing and finger-pointing is politically motivated. Senate Democrats have seized upon an issue that makes it easy for them to attack the Bush Administration for its lack of executive oversight, but their efforts do nothing to advance the conversation about how America can best protect itself and its allies from security threats. The negative sentiment generated by the media outcry over the CIA’s use of torture contributed to the early morning downturn in stocks.
While the Senate is bogged down in its torture investigation, Congress would seem to have a much more pressing issue on its docket. On Thursday, the House will vote on a new budget that exceeds $1 trillion; a failure to pass the new budget in time would result in the ominous “government shutdown” that the politicians seem to hold over the public’s (and their opponents’) head when it comes time to approve the next year’s spending measures. In the highly unlikely event of a shutdown, gold and silver would stand to gain from rabid safe haven demand. One of the more lamentable provisions in the measure frees up big banks to keep swaps trading in units with federal backstops, essentially meaning the government will continue to guarantee covering Wall Street’s losses. Don’t be surprised if stocks remain volatile heading into the vote tomorrow as traders try and position themselves accordingly.
Geopolitical News Affecting Gold
The crash of Greece’s economy plunges the Northern Mediterranean nation into recession anew, just as there were signs that–perhaps–Southern Europe was emerging from the lowest depths of its recent economic strife. Greece is a bellwether for the region that includes Portugal, Spain, and Italy; though these countries enjoy greater integration into the European system than Greece by virtue of their history and geography, Greece has been the most active among them in adopting and implementing EU economic policy, and is undoubtedly a proxy for how Eurozone policies spillover into Eastern Europe and affect those economies. Analysts and investors alike will be closely watching developments in Greece as a signpost for the tenuous European recovery in general.
Wednesday morning saw an announcement from OPEC confirming that the trade bloc has cut its forecasts for oil demand in 2015. With oil prices in a veritable freefall over the last 6 months (declining 40% thus far this year), there would have to be an unprecedented spike in prices for next year’s demand for energy to match even this year’s levels. While overproduction and a supply glut are factors in oil’s slide, the driving force seems to be economists’ tempered projections for growth in 2015. Lower economic growth around the globe means less use of fuel, and the markets seem to be anticipating such a situation developing next year.
In Asia, the fledgling Hong Kong pro-democracy demonstrations seem to be winding down to their conclusion, as police plan to “sweep” protesters off the city streets tomorrow. Although the protests have gained little in the way of securing the policy changes they originally sought, the clogging of the business district with the bodies of students and protesters has not only placed an enormous damper on commercial activity, but has also grabbed the public’s attention and increased the visibility of the demonstration’s aims. It remains to be seen if China will honor any of the movement’s requests, as the establishment has essentially quelled the unrest without making any concessions.
First-time jobless claims and retails sales reports will be released tomorrow, providing investors with a sense of how robust the holiday shopping season has been so far. Import and Export prices as well as business inventories will also be important data to watch. The overarching event to keep an eye on will be the looming government shutdown, however.