Although the Empire State Manufacturing Index saw a surprise drop in industrial activity in New York state, overall U.S. industrial production beat expectations by rising 1.3% after gaining only 0.1% the previous month. Similarly, industrial trends in the UK surprised with a gain from 3 to 5, despite the economic slowdown across the Channel in Europe.
Precious metals are down this morning, a day ahead of a Federal Reserve Open Market Committee meeting that may be persuaded by today’s economic news to proceed with raising benchmark interest rates in the first quarter of 2015.
Today and tomorrow will be consumed by maneuvering in the marketplace in anticipation of the FOMC’s ruling, and Chairman Janet Yellen’s press conference afterwards.
Yesterday in the Markets
Friday was a bad day for just about all the markets. Wall St. opened in the red, and drifted below unchanged until the last half hour of trading, when losses accelerated. All major indices posted losses for the week, with the Dow down 3.8% for the week, the worst weekly loss in three years. The S&P 500 was down 3.5% for the week, its worst performance since May 2012. The Nasdaq was down 2.7% for the week.
Despite modest losses on Friday, gold gained 2.4% for the week, and silver posted a big 4.6% gain for the week.
Treasuries were a big winner on Friday, as the rout in energy sector junk bonds continues. The yield on the 10-year T-note shed a big 8 basis points, to close at 2.08%. Brent crude ended the week with an 11% loss. It isn’t just corporate junk bonds that are seeing all sellers and no buyers, but the sovereign debt of emerging market oil producers are also being squeezed over fears that the free-fall in crude oil is increasing the chances of default.
Factors Affecting Gold Today
Congress passed a spending bill over the weekend that gives the “Too Big To Fail” banks permission to return to the derivatives market and gamble with depositors’ money again. This means that the Big Banks get to keep any profits, but the American taxpayer will have to bail them out again for any losses. Today may be a good day to ask your Congressperson and Senator what they received from Wall St in return for their “yes” vote on this.
COMEX has announced that there will be daily price limits on gold and silver, started December 22. If the prices move up past a certain amount, trading will be halted. Tongues are wagging in the alternative press why this was suddenly announced, when COMEX apparently had no problem with the prices being hammered a year and a half ago.
Brent crude is seeing some minor support as reports of rebel gains in Libya put the level of future oil exports from that shattered nation into doubt. Most of that oil just crosses the Mediterranean to Europe. Even so, a spokesman for the United Arab Emirates says that the nations are not afraid of even $40 a barrel oil prices, as the Gulf States continue to play hardball to reduce competition from the US and Russia by pricing at least some of their oil companies out of business. The reduced competition will revive OPEC’s pricing power in the marketplace.
The ruble fell through the 60 per dollar mark today for the first time ever, a combination of cratering oil prices, and economic sanctions over Russia’s seizure of Crimea and support of pro-Russian rebels in eastern Ukraine.
Gold imports by India rose 34% in November from the previous month, to $5.61 billion. This is of course, only above-the-table imports. Gold smuggling still flourishes in India.
The political party of prime minister Shinzo Abe in Japan widened their control of the lower house of Parliament in elections over the weekend. This is seen as a mandate for “Abenomics,” the most massive quantitative easing policy in the world, as Japan does everything it can think of to break a long deflationary spiral.
The big news is the start of the FOMC meeting tomorrow through Wednesday afternoon. While the Fed continues to remind investors (and speculators) that its mandate is for the American economy, not the global economy, the producer price reports from all over Europe will doubtlessly still affect markets tomorrow. The US gets a new home housing starts report tomorrow as well as retail sales.
The German ZEW economic survey is also due tomorrow, which will give a reading on Europe’s strongest economy.