The news that yesterday’s Minsk meetings produced a fresh ceasefire agreement between leaders from Ukraine and Russia, brokered by ministers from Germany and France, is helping boost European stock indices significantly this morning. The ceasefire is set to begin February 15th, according to Russian premier (prime minister? president? whatever he decides to be called) Vladimir Putin. The agreement also called for the scaling back of heavy artillery and, it is hoped, greater autonomy for the eastern provinces in Ukraine where the fighting with the rebels has been the most intense. On the domestic front, somewhat disappointing numbers from the weekly jobless claims and January retail sales have U.S. stock indices mixed but mostly flat, while commodities such as crude oil and the precious metals were well into the green this morning.
Yesterday in the Markets
Gold took a haircut of about $10 during yesterday’s trading, while crude oil prices fell to snap the benchmarks’ winning streak. Platinum and palladium continued to slip, though silver stayed fairly steady around $16.85/oz. The equities markets were largely idle, and benchmark Treasury yields remained parked at 1.99%.
Factors Affecting Gold Today
While there is initially optimism in the markets about the potential wind down of the Ukrainian conflict, serious doubts remain about the viability of the ceasefire, and the West’s ability to enforce its stipulations if either side breaches its terms. This is not the first time such a compromise has been struck: the measure revives a long-broken ceasefire that was reached in September. The 18-hour talks that produced the current agreement have been characterized as a “last gasp,” a necessary move in response to the escalating violence in the struggle. To date, the conflict has claimed over 5,000 lives; perhaps overlooked is the damaging effects it’s had on the stability of the global economy, especially in Europe. Both Ukraine and Russia have seen their economies torn to tatters by the consequences of the war, placing added pressure on an economic environment that is already fragile. Ukraine will receive $40 billion in aid from the IMF over the next four years as part of the ceasefire agreement.
European shares rallied on the Ukraine news, and got more support from the headlines when the group of euro area finance ministers discussing the Greek debt question decided to put of their decision until at least next week. Although the Greek side of the negotiations has struck a more conciliatory tune in recent days, the delay may help ward off a potentially fiery confrontation between the two sides. With the time away, cooler heads typically prevail. Moreover, the longer the discussions carry on without incident, and the closer we get to an outright default in Greece, the more public sentiment will likely swing toward the EU and ECB making concessions to meet the Greek administration halfway. Stocks also responded positively to the Swedish national bank, Riksbank, cutting its benchmark rates into negative territory, sending the Swedish krone to a 6-year low.
Meanwhile, Japanese stock indices were also on the rise this morning as manufacturing orders were up and the yen was easing coming off of the Japanese Foundation Day holiday. The Nikkei 225 rose over 300 points on Wednesday and is now approaching 18,000, matching its highest levels since 2007. Though the weakening of the yen has convinced officials at the Bank of Japan not to implement any further quantitative easing (for now), the Japanese stock markets may be overheating. The Nikkei is now basically in parity with the Dow Jones.
Despite weekly jobless claims rising above 300,000 and a retail sales for January remaining flat at just 0.1% growth, both the precious metals and U.S. stocks were heading higher in morning trading around 10 am EST. The markets seemed to draw their optimism from the positive vibes, so to speak, coming from abroad, with the delay of a decision on Greece, the preliminary ceasefire compromise in Ukraine, and Sweden cutting rates. Gold and silver benefited modestly from an easing dollar; the USD fell by more than 0.6% on the DXY, which also helped both crude oil benchmarks advance.
The consensus consumer sentiment gauge will be released tomorrow, providing more context to today’s retail sales and consumer spending numbers. Import and export prices will also be announced.