Each of the precious metals opened higher this morning while crude oil prices slid back considerably. Along with a weaker euro (trading at $1.126 to the dollar), this pushed the greenback higher, as it rose to 94.9 on DXY spot index. While gold jumped nearly 1% to move back above $1,210/oz, silver added another 25 cents to inch above $16.70/oz. Platinum and palladium were also sharply higher in early morning trading, with the latter rising back toward $815/oz. Much of the focus in the markets shifted from international affairs to a slew of mildly disappointing economic data in the U.S. released this morning. WTI crude fell by more than 2% this morning, slipping below $50/bbl, while Brent was actually up slightly, widening the gap between the two benchmarks.
Yesterday in the Markets
The metals rose slightly yesterday, stabilizing after losses earlier in the week. Meanwhile, stocks were mostly flat in the U.S. but ended mixed, with the S&P 500 and Nasdaq nominally lower and the Dow Jones just barely higher. All three indices are trading near all-time highs.
Factors Affecting Gold Today
The equities markets are pointing a bit lower in the U.S. this morning after the Consumer Price Index (CPI) dropped by 0.7% in January, its steepest fall in 6 years. Falling gasoline costs contributed to the slide in general prices, so the bounce-back for gas prices over the last few weeks should show an uptick in inflation when this month’s data is compiled. Weekly jobless claims also came in above expectations, as new unemployment claims rose by the most since the end of 2013. The bad taste this data may leave in Wall Street’s mouth today will be tempered by the 2.8% increase in durable goods orders in January. This follows December’s ugly 3.7% drop, and is the first time orders for durable goods has risen in three months.
The dollar also saw support from Janet Yellen’s Congressional testimony over the last two days, during which the Fed Chair began to edge toward a more hawkish outlook for U.S. monetary policy. Yellen said the Federal Reserve Open Market Committee (FOMC) would now be gauging the proper timing of its impending rate hike on a “month-by-month basis.” St. Louis Fed President James Bullard seconded this motion in his own separate comments yesterday, emphasizing that the FOMC ought to remove “patient” from its statement language at next month’s meeting in order to reflect the “optionality” in the Fed’s current strategy. Especially after Bullard’s statement, the dollar began to climb on the expectation of tighter monetary policy on the horizon. Japan’s Nikkei 225 notched a 15-year high after Yellen’s testimony, as well.
The agreement between Greece and the ECB seems to be taking hold, as ECB President Mario Draghi confirmed that the central bank will again accept Greek sovereign debt as collateral for more loans so long as the Greeks adhere to the list of reforms they proposed to the European Commission and the continent’s finance ministers. Since February 4th, when the Troika decided it would not take on Greek bonds for further funding, the government has been operating on emergency liquidity funds. It will still need to negotiate a long-term debt restructuring with its creditors over the next 4 months of extended bailout assistance.
Between the easing of the Greek situation, a surprising drop in German unemployment, and the seemingly stronger truce between Ukraine and its pro-Russian rebels, Europe has seen a boost in consumer confidence. This is also helped by the impending disbursement of ECB QE, sending European stock indices higher basically across the board this morning. Even Portuguese bonds have seen support, rising 12 straight days to send 10-year yields below 2%. All of the positive news for Greece is causing some political dissent in austere Germany, however.
In other news, a decision on the proposed net neutrality rules is expected to be approved by the FCC today. The new regulations are intended to “level the playing field” for telecommunication providers, preventing them from controlling download speeds and manipulating web traffic. The new measures are likely to be vehemently opposed by the leading cable and telecom companies in litigation, however.
As the U.S. has been seeking to reopen normal relations with Cuba, the economic outlook for the island country has already improved. The benchmark Caribbean Basin Fund has risen 27% since President Obama announced new diplomatic ties at the end of last year. A second round of meetings between representatives from the U.S. and Cuba will take place Friday to hash out the logistics of the new relationship between the two countries.
Several presidents of regional Fed branches will be speaking tomorrow, including Fed Vice Chair Stanley Fischer and NY Fed President Bill Dudley, at a monetary policy forum in New York. European and Japanese officials will also attend. In economic news, fourth quarter GDP numbers come out at 8:30 am EST, followed by Chicago PMI, consumer sentiment, and the pending home sales index.