German bunds continue selling off, with the yield on the 10-year note rising 4 basis points in the first hour of trading. This put pressure on European stocks again today.
Oil is lower, with WTI falling under $59 a barrel, and Brent crude dropping below $63. These losses are despite the dollar being 0.5% lower against a basket of currencies.
Yesterday in the Markets
Friday’s non-farm payrolls report was the spark that may have sent markets into their seasonal summer doldrums. The stronger than expected numbers put a Fed interest rate hike for September back in the running, a day after IMF President Christine Lagarde had called on the Fed to delay the first rate hike since 2006 until mid-2016.
One pundit described the NFP report’s effect on the markets Friday as “carnage.” Bond yields climbed again, as people tried to unload notes bearing a near-zero interest rate, only to find no buyers. The dollar blasted upward on expectations of an imminent interest rate hike, pushing the euro back down to 1.11, and yen down to 125.6, a 13-year high.
The 10-year Treasury note yield hit 2.44% before closing at 2.40%, capping the largest weekly jump in yields in almost two years. The German 10-year bund had the worst week since the nation converted to the euro in 1999, dropping 3% in value. The yield on the Greek 10-year note rocketed up 11%, after the socialist government rejected the latest bailout plan put forward by its creditors, and it missed an IMF loan payment due. Showing what can happen when you successfully complete economic reforms after being bailed out, Standard & Poors upgraded Irish debt from A to A+ on Friday. This follows an upgrade from A- to A just six months ago.
Oil had an exciting up-and-down day Friday, ending in the “win” column. WTI crude rose $1.13 to close at $59.13, and Brent ended the day up $1.28 to close at $63.31.
Spot gold struggled to recover after being smashed downward by $15 to $1,161 after the non-farm payrolls report, but managed to substantially trim the loss to on;y $4.10 (losing 0.35%) Silver was affected to a far lesser extend, and even managed to post a 5 cent gain on the day. Platinum Group Metals were only marginally lower.
Factors Affecting Gold Today
Stocks are selling off around the world, as economic weakness in China, Grexit fears in Europe, and a continuing rout in government debt weighs on all markets.
Unrest in the Aegean is the byword in Europe today, as not only is Greece facing a political collapse as the socialists struggle to keep impossible campaign promises as the ruling party fractures, elections in Turkey ended the ruling party’s majority in Parliament for the first time since 2002, despite reports of election fraud by international observers. The Turkish lira plummeted 3.4% to an all-time low, while the Turkish stock market collapsed by 6.2% over uncertainty regarding how President Erdogan would react, as he has a reputation of lashing out at political enemies and suppressing dissent. Erdogan had anticipated a 2/3 majority for his party, so he could push through constitutional changes to accrue more power in his office. Thankfully, his initial reaction seemed conciliatory.
On the Greek front, leftist prime minister Tsipras has apparently burned another bridge. After he and other Greek officials took to the floor of parliament to demonize their creditors over the latest proposal to release the last €7.2 billion in bailout funds, Tsipras tried to telephone European Commission President Juncker, who has been an ally. Juncker refused to take the call, citing Tsipras’ tirade as misrepresenting the position of the creditors. He told reporters that while work would continue on crafting a bailout for Greece, friendhip “has to observe some minimal rules.” Bank runs are reported to have accelerated after the Parliament meeting, putting pressure on the government to come to the table with a realistic plan.
The cause for the drop in the dollar, which should have continued to ride a rate hike high, was a leaked report (later denied) that Obama said the strong dollar was a threat to America’s economic recovery.
Tomorrow’s economic reports include both consumer and wholesale prices in China, composite GDP in the EU, import/export numbers from the UK, and job openings in the US.