Each of the precious metals opened sharply lower this morning, as futures trading points to a pullback for both commodities and equities today ahead of the Federal Reserve Open Market Committee’s two-day policy meeting being held today and tomorrow. Anxiety over what will happen if the Fed makes a surprise rate increase earlier than this summer has spread beyond the U.S. borders, as the global economy could also be shaken up by a shift in Fed policy. With the St. Patrick’s Day holiday, expect a slight dip in trading volume today, and uneven movement amid the uncertainty with the Fed.
Yesterday in the Markets
The precious metals traded mostly flat on Monday while U.S. equities continued their rally from the end of last week; each U.S. index gained about 1.3%. Crude oil prices slid and U.S. treasuries saw renewed demand, driving down 10-year yields to 2.05%.
Factors Affecting Gold Today
In China’s race to be a truly global player in the financial sector, more European nations are hopping on board the proposed Asian-led investment bank, the AIIB, which is seen as a challenge to the World Bank and other Western-dominated financial institutions. In addition to the British, the French, Germans, and Italians have also thrown their public support behind the plan. This follows attempts by the U.S. to undermine the bank project itself, as well as Congress’ stonewalling of the IMF in reference to China gaining greater voting rights with the supranational organization in order to better reflect the Chinese economy’s standing in the world system. The tensions created by this development could form the narrative for more economic warfare between China and the U.S. in the coming months and years.
Elsewhere in Asia, the Bank of Japan is keeping its foot firmly on the stimulus throttle, reaffirming its pursuit of the ¥80 trillion easing package approved a few months ago. The BoJ is pushing forward despite the underwhelming results: even with the stimulus, inflation has continued to tumble for the world’s third-largest economy, even as the yen slips in value relative to the dollar. The Nikkei 225 hit a fresh 15-year high yesterday after adding 1%. Nearby, in Australia, the RBA decided not to cut its rates again just yet, seeking to give February’s surprise cut time to take effect. Speculation abounds that the RBA has left open the possibility of another rate cut in the near future.
The story is somewhat similar in the euro area, though it would seem be experiencing more immediate results. The euro plunged last week while European shares advanced across the board, the effects we have to come expect from quantitative easing announcements. ECB President Mario Draghi has said that the central bank’s QE program is beginning to take hold; however, fears about the Fed raising rates are putting a damper on the markets across the Atlantic. The euro rose back above $1.06 this morning, while stock indices were lower across the continent. After setting record highs recently, Germany’s stock markets are lower today on softening industrial sentiment in the country, as well as mounting political frustrations against the Greeks. Only London’s FTSE 100 was in the green, although the imminent elections in the U.K. are complicating matters for Britain.
In U.S. economic data, housing starts fell by the largest margin in 4 years, which many analysts are largely attributing to the frigid winter weather and inordinate snowfall around the country. This slowed construction and led to homebuilder confidence slipping to an 8-month low. Despite the poor showing, the “weather excuse” has led many to maintain their bullish bets on the housing market continuing to peak up steam over the rest of the year.
All eyes will be on the Fed meeting taking place over the next two days. Tomorrow afternoon will see the Fed announcement by Chair Yellen at a press conference around 2:30 pm EST.
by Everett Millman