U.S. markets were relatively quiet this morning in anticipation of tomorrow’s momentous meetings in Europe. Not only are peace talks going to be held between leaders of Germany, France, Ukraine, and Russia in an attempt to hash out some sort of deal to end the conflict, but the Eurozone’s finance ministers will also be gathering to discuss the Greece situation. U.S. indices opened slightly higher, while the precious metals were slightly lower this morning. Crude oil prices sank to open trading before recovering near unchanged.
In other odd news, the so-called Islamic State has apparently hacked Newsweek’s Twitter feed, posting confidential Pentagon documents it claims to have hacked, and using the hashtag #CyberCaliphate.
Yesterday in the Markets
Stocks took a downturn for the second straight trading day on Monday, while gold and silver inched higher.
Factors Affecting Gold Today
Between the Russia-Ukraine talks and the meeting of Europe’s finance ministers, the fate of the EU palpably hangs in the balance. Depending upon how these discussions unfold, we could see the unraveling of the currency union; and, depending on the results of the peace negotiations in Minsk, we could also see the major powers in Europe become embroiled in a war with pro-Russian rebels (and perhaps the Russians themselves). The global community will have to decompress the situation in the hours leading up to tomorrow’s momentous confrontations–which will hopefully turn out to be more conciliatory than confrontational. Barring any leaked information that brings more clarity to the situation, expect markets to remain muted in the lead-up to tomorrow’s events.
On the Greek front, it appears that Germany’s stonewall of any changes to Greece’s original bailout agreement is forcing the country’s newly-elected leaders to veer toward compromise rather than fire-and-brimstone. PM Tsipras and FM Varoufakis, the ministers leading the negotiations, are seeking “bridge” funds to keep the country afloat and the government operating in the short-term while a broader solution to the Greek debt problem continues to be discussed over the coming months. (Greece’s debt currently stands at €320 billion, nearly 175% of its GDP.) EU officials, in fact, don’t expect a conclusive pact to be agreed upon anytime in the next week or so. Nonetheless, the outcome of the finance minister meeting tomorrow will go a long way toward determining how soon a deal can be reached, and what such a deal will entail. The news that Tsipras and Varoufakis may be leaning closer to compromise is helping boost Greek stocks and bonds this morning: even after yields fell 50 basis points, the 10-year bond yield was still at an eye-popping 10.2%.
Elsewhere in Europe, manufacturing in the U.K. surprisingly rose in December, capping off the country’s first year of advances in the manufacturing sector since 2010. The 1.4% rise in factory output last year is expected to carry over into this year as well, although the potential impact of plunging oil prices is still not completely clear. Even with crude oil prices staging a small recovery over the last week or so, many analysts are claiming that the bottom is not in. Citigroup characterized oil’s recent rally as a “head fake,” and warned that crude prices could fall as low as $20/bbl, possibly bringing OPEC to its knees. With production unlikely to be cut until much later in the year, the oversupply of oil could continue to drag down prices in the near-term–but with Brent crude still above $58/bbl, a drop toward $20 per barrel would still be remarkably steep.
Gold and platinum should receive some support from the mechanization of Amplats’ (Anglo American Platinum) South Africa’s mines, which is expected to increase the safety and efficiency of its mines by replacing human drill workers with hydraulic machines, allowing them to reduce the size of subsequent mine shafts. With the relatively low price levels of the precious metals over the last two years, as well as the 5-month workers strike that halted mine production during much of 2014, mining companies have been reluctant to invest in new innovations, so this could be a good sign for precious metal production.
Tomorrow’s economic data to watch will be the EIA Petroleum report and the release of the Treasury budget; more focus, however, will be on the Euro area finance ministers meeting about Greece, as well as European leaders meeting in Minsk, Belarus to figure out the Ukraine situation.