The markets opened slightly lower this morning in anticipation of the Fed releasing the minutes from last month’s FOMC meeting later this afternoon. With the uneven economic data and stock market performance so far in 2015, most are expecting the Fed committee to stick to its guidance for patience in raising rates. This comes despite the accelerating momentum behind calls for the central bank to make its first benchmark rate hike in over a decade, causing many analysts to move up their timetables for the Fed’s first action: Instead of September, some experts and market participants are now adjusting their expectations to a possible June rate increase. Gold and silver rose modestly this morning, though platinum and palladium were each slightly in the red. Equities opened down as well, though they aren’t likely to move a great deal in either direction until today’s announcement at 2 pm EST.
Yesterday in the Markets
Although it rose just 0.16%, the S&P 500 notched another record close on Tuesday, as U.S. equities managed to just barely poke into the green. 10-year Treasuries took a considerable tumble, with yields rising to 2.11%. The precious metals saw a sell-off, with gold dropping nearly $20 and the rest of the metals following.
Factors Affecting Gold Today
The Fed’s take on the current economic environment is unlikely to lead them anywhere but a dovish direction, given both their past patience and the up-and-down character of recent economic reports. Although the U.S. economy continues to expand, inflation continues to be held down far below the Governing Board’s targets. Even with momentum gathering in favor of a more imminent increase to interest rates, if we have learned anything about the way Fed Chair Yellen would like to steer monetary policy, it’s that she will not act before it becomes clearer that a rate hike won’t spook the markets and drive away yield-seeking investors. Today, more signs of disinflation came in form of a fall for housing starts and a 0.8% decline in producer prices in January. The slump in oil prices is a contributing factor to the weakness in PPI, as evidenced by Berkshire Hathaway liquidating its $3.7 billion stake in oil giant Exxon Mobil.
Britain’s HSBC continues to come under fire for what is now being characterized as a money laundering case. The megabank recently revealed that thousands of its clients had avoided paying taxes by moving their funds into the Swiss arm of HSBC. The bank’s Swiss operations are alleged to have helped wealthy account holders–even those involved in the illicit diamond trade and drug trafficking–hide their money in Switzerland, not only avoiding taxes in their own countries but also hiding their activities from authorities around Europe. Nice to know that HSBC has apologized for its role in laundering the money.
The geopolitical situation remains strained in Europe. The fresh violence in Ukraine is still unresolved, disrupting (and claiming) lives across the eastern part of the country. Though its imperial ambitions are fairly clear, Russia also seems to be using the conflict as a way to draw the West further into an international crisis, diverting its attention and resources. Meanwhile, there has been more can-kicking with the Greek question; though talks have deteriorated, the ECB is unlikely to pull the plug on Greece’s financial assistance before next week, even as Germany ramps up the rhetoric and the pressure to force Greece out of the euro union. At the same time, Greece would like to continue receiving emergency liquidity funds from Europe rather than conceding to the terms of the bailout loan (i.e. more austerity measures) in order to access that money. The two sides seem far apart at the moment, but most believe a political solution will be struck before a “Grexit” scenario.
In addition to weekly jobless claims and the EIA Petroleum Status Report tomorrow, the Philadelphia Fed Survey and Leading Indicators data for January should offer more clarity on what direction the economy is moving.