Shenanigans and name-calling in the Greek bailout crisis are taking a back seat today, as the market’s attention is riveted on the Federal Reserve’s policy meeting which concludes at 2pm in Washington, DC.
While practically no-one believes the Fed will raise benchmark interest rates from near-zero this month or the next, analysts will be trying to beat each other to the correct conclusion of whether September will be the kickoff date.
Stocks opened higher in New York this morning, with merger talk negating Greek jitters for the second day. The dollar and gold both are slightly lower (usual behavior ahead of an FOMC statement.) Oil is up 2% in morning trading,
Yesterday in the Markets
Stocks in Europe and the U.S. were up between .5% and .6% Tuesday, after nasty falls on Monday. Merger announcements are buoying stocks despite jitters of the Greek bailout impasse, as companies rush to complete deals before borrowing costs increase.
Gold and silver saw moderate losses Tuesday, closing down around .4%. Platinum lost $7/oz to close at $1,078, a new six-year low, while palladium was flat.
U.S. and German bonds saw a bit of safe haven play, with the yield on the 10-year T-note dropping to 2.31% and the 1-year bund closing at 0.80%. Bond yields drop as their prices rise.
WTI crude closed up nearly .6%, due to Tropical Storm Bill hitting the soggy, refinery-rich Texas Gulf Coast, where nearly two dozen people died in flooding last week and rivers remain swollen. Brent crude was down slightly.
Factors Affecting Gold Today
Wall St opened modestly higher, but began leaking almost immediately as traders prepare for the FOMC meeting. The dollar is down slightly against the euro, but up against the yen.
Gold is down $3 an ounce, slipping below support at $1,181/oz ahead of the Fed’s 2pm announcement. A rise in benchmark interest rates will have an initial downward influence on gold, reducing its attractiveness to short-term speculators.
Speaking of gold, some news regarding the world’s two largest consumers of the precious metal. Gold imports into India for the first quarter of 2015 rose 15% compared to Q1 2014, totaling 191.7 metric tons. China finally gets a seat at the gold fix table, with the Bank of China joining the committee of megabanks that sets the gold price twice a day in London.
Preliminary reports yesterday stated that U.S. crude oil stockpiles dropping 2.9 million barrels last week. The official numbers will be released at 10:30 am.
Of course, the huge event for markets today is the FOMC meeting concluding at 2pm. Fed chair Janet Yellen will give a press conference at 2:30. Watch the forcasts for interest rates for the rest of the year. If the Fed says it sees .625% rates, that will most likely signal a .25% rate hike in September, and .25% in December.
On the Greek bailout front, the Financial Times reports that the bond market seems to think that a deal will eventually be reached that will not adversely affect private investors. This, despite the rhetoric out of Athens becoming more vitriolic by the day, in an apparent act aimed to placate the most far-left of the socialist/Euroskeptic members of the ruling coalition in Greece.
With the Greeks refusing to offer any last-minute deals, and using this time to demonize the institutions that bailed the nation out twice, it seems that the EU and IMF have mis-read the Syriza government all this time. Instead of being politicians that said things to get elected, they are committed culture warriors who truly believe in their cause. When initial attempts to scrap the present bailout deal failed, the socialist government has been “running out the clock” by keeping up appearances of negotiating until the present bailout agreement expires at the end of the month. That way, they can demand a renegotiation of terms with no preconditions, with the bonus that the EU will be feeling far more pressure to strike a deal. The loss of the last €7.2 billion in the existing bailout is no loss to the Greeks, if it means cutting a better deal for the third bailout.
Just to put the screws on the EU a little more, prime minister Tsipras is flying to Russia for three days starting tomorrow, as talks take place among the EU member states to extend economic sanctions against Russia for its invasion of Ukraine. It requires a unanimous vote to extend sanctions, and Russian president Putin may consider sliding a few billion dollars under the table to Greece a tiny price to pay to rescue the Russian economy.
Thursday brings us consumer prices and first-time jobless claims in the U.S., a policy statement from the Bank of Japan, and retail sales in the UK. The Bank of England may soon be feeling pressure to raise interest rates itself, since wages rose in the UK last month at the highest rate since 2011.