Both U.S. stocks and precious metals being traded in New York looked to open slightly in the red this morning ahead of the FOMC’s announcement from its monthly policy meeting at 2 pm EST this afternoon. While all eyes are on the Fed in the U.S., European markets are mixed on the ECB’s turmoil with Greece, and shares in Asia continue to rally. Expect a somewhat divergent response between global equity markets and those in the U.S. whichever way–whether hawkish or dovish–the announcement by Chair Janet Yellen is perceived.
Yesterday in the Markets
U.S. stock indices fell again, with the S&P 500 pulling back a third of one percent, and the Dow Industrials over 120 points, or about 0.7%, in the red. The Nasdaq managed to inch 0.16% into positive territory. Bonds saw demand again, pulling 10-year yields down to 2.02%. Precious metals also fell, although gold and silver did manage to return near unchanged by day’s end. Spot platinum lost a double digit dollar amount to fall just below $1,100/oz, a fresh 5-and-1/2-year low, and palladium finally sank below support around $800/oz to come crashing some $40 lower.
Factors Affecting Gold Today
All of the hype on this episode of “Fed Day” is whether or not the committee will remove the “patience” language from its monthly statement, perhaps in favor of overtones of “confidence.” This would be the more hawkish signal that everyone is waiting for. Stocks and precious metals will probably continue to trickle lower all morning until the announcement comes, however. Even if Janet Yellen suggests an imminent summer rate hike from the Fed, the continued rally for the dollar will likely force the FOMC to consider making its rate increases more gradual, in smaller increments than 25 basis points. The DXY remains solidly above 99.7 this morning.
Part of the damper on stocks and PMs is low headline inflation, and crude oil’s renewed slide is largely the culprit. Both crude benchmarks were down over 2% around 10 am EST this morning, pressing Brent and WTI below $53.50/bbl and $42.50/bbl, respectively. With the oversupply in crude inventories simply piling up, they are literally running out of places to put the gooey stuff. The larger spread between Brent and WTI is likely to spell more drag on U.S. stocks until domestic demand begins to pick up.
Meantime, both Asian and European shares were advancing almost across the board. In Japan, exports rose more than analysts expected in February, marking the 6th consecutive month of growth for the country’s exports. This rise in exports is being fueled by the weakness of the yen, and has predominantly occurred in the smartphone gaming sector. Nintendo’s stock jumped over 20% yesterday, reaching its daily trading limit on the Nikkei 225, which added about 0.6% overall.
Europe was a bit of a mixed bag as the EU–and its Western institutional apparatus–continues to be frustrated in its negotiations with Greece. The Greeks were evasive in providing a progress report on its reform proposals to the euro area’s finance ministers via teleconference yesterday, prompting the EU contingency to begin lobbing angry public statements about the Greeks’ lack of cooperation. This indignation was felt across the continent, as the ECB’s unveiling of its new headquarters in Frankfurt, Germany was marred by protests and riots by activists dissatisfied with the European Union itself. Anti-EU sentiment has been spreading by measures in Germany, France, Denmark, the U.K., and elsewhere over the last few years since the ECB bailout and subsequent QE package began to take form. There may be a renewed wave of tail-risk safe haven demand for the precious metals in Europe as the “Grexit” situation unfolds, just as we saw toward the end of 2014.
The Fed decision today will likely guide the markets through the rest of the week. Check here for more important economic data being released by developed countries around the world on Thursday and Friday.