The big news this morning is the European Central Bank implementing its stimulus program this morning by purchasing German and Italian government bonds. Shares on both sides of the Atlantic were lower in early trading. Meanwhile, precious metals were mixed, with gold ($1,172/oz) and the ever-resilient palladium ($824/oz) both up modestly, and silver ($15.92/oz) and platinum ($1,156/oz) both slightly in the red. This follows Friday’s sharp pullback on a slew of strong economic data that is raising anxieties about a rate hike coming from the Federal Reserve as soon as June. Bonds also saw a significant pullback, as 10-year yields jumped from 2.10% to 2.20%.
Yesterday in the Markets
Friday saw a precipitous drop in the precious metals, with gold giving up around $30 to close near $1,170 per oz. Silver fell below the $16 mark, and platinum slid further but made up a bit of ground on the gold price. Palladium proved the least affected, remaining above $820/oz.
Factors Affecting Gold Today
The ECB bond-buying has begun, and this has placed downward pressure on the euro, trading at only about $1.08. Consequently, the DXY dollar spot index has zoomed to an 11-year high; it’s slightly off this morning but remains above 97.5. At some point, a particularly strong dollar will have to begin to drag on the economy, as it has already been cutting into corporate profits overseas as exports become too expensive. In Europe, markets have been flat to negative with the beginning of the ECB stimulus. German exports for January, when seasonally adjusted, showed the biggest drop in 5 months.
At the same time, tensions are flaring again between Greece and its creditors. The group of finance ministers meeting in Brussels have found the list of reforms promised by the Syriza government to be inadequate, and Greek officials are rushing to get this step of the negotiations completed before the administration runs out of funds, as a failed reform proposal would prevent more money from being disbursed. High-ranking members of the Greek government made mention of a possible referendum on whether or not to go along with the bailout if the eurozone finance ministers rejected the current proposal.
Asian shares were also lower as Japan revised its 4Q GDP for last year lower, from 2.2% to 1.5%. The Nikkei 225 was off about 1% this morning, though it remains robust near 18,800. This also comes amid a trend of wealthy Japanese corporations deciding not to invest in Japan due to the unconventional economic regime of “Abenomics.” Although the country’s stock market has been seeing a record amount of cash inflow, much of this is foreign money, while the majority of Japanese investment has gone overseas. In China, the slide in the gold price below $1,200/oz may stimulate some gold-buying on the price dip.
The Job Offerings and Labor Turnover Survey (JOLTS) comes out tomorrow, along with wholesale trade data. In China, CPI and PPI numbers will be released.