Monthly Archives: February 2017

Europe’s “slow recovery” narrative is no longer credible, and Michael Spence worries that anemic growth is here to stay

ProjectSyndicate/Michael Spence/02-28-17

Upholding EU rules is no longer practical, because the current system imposes too many constraints and contains too few effective adjustment mechanisms. To be sure, fiscal, structural, and political reforms are sorely needed; but they will not be sufficient to solve Europe’s growth problem. The bitter irony in all of this is that eurozone countries have enormous growth potential across a wide variety of sectors. Far from being basket cases, they simply need the system’s constraints to be loosened.

Will Europe’s future resemble a slow-motion train wreck, or will a new generation of younger leaders pivot toward deeper integration and inclusive growth? It is hard to say, and I, for one, would not dismiss either possibility.

One thing seems clear: the status quo is unstable and cannot be sustained indefinitely. Absent a marked shift in policies and economic trajectory, the political circuit breakers will be tripped at some point, just as they have been in the US and the UK.

Posted in Economy |

The Daily Market Report: Gold Generally Well Bid Amid Mixed Data, Anticipation of Trump Address

USAGOLD/Peter A. Grant/02-28-17

Gold remains generally well bid, near the high end of the recent range, amid mixed economic data. However, focus today is on President Trump’s address to Congress that will take place this evening.

Consumer confidence, Chicago PMI and the Richmond Fed Index all beat expectations. On the other hand the second-report on Q4-16 GDP disappointed and the trade deficit ballooned in January to -$69.2 bln, which will likely have a negative impact on Q1 GDP.

Bank of America has already lowered their forecast for Q1 growth to 1.8% from 2.0% previously. The Atlanta Fed’s GDPNow model, presently reading 2.5%, will update tomorrow.

Mr. Trump is expected to focus on his “big” infrastructure spending plan tonight, military spending, as well as tax and regulatory reforms. The stock market is likely to be enthusiastic about all three, but there is also some degree of accompanying apprehension whenever the President speaks.

Posted in Daily Market Report, Gold News, Gold Views |

China eyes 12 percent broad money supply rise in 2017 – sources

Reuters/Kevin Yao/02-28-17

China plans to target broad money supply growth of around 12 percent in 2017, slightly lower than last year’s goal, policy sources said, signaling a bid to contain debt risks while keeping growth on track.

Under its new “prudent and neutral” policy, the People’s Bank of China (PBOC) has adopted a modest tightening bias in a bid to cool torrid credit expansion, though it is treading cautiously to avoid hurting the economy.

Posted in Central Banks, Monetary Policy |

The World’s Most Radical Experiment in Monetary Policy Isn’t Working

WSJ/John Lyons & Miho Inada/02-26-17

Japan remains definitively stuck, despite a long and aggressive experiment with ultralow rates. A quarter-century after its property bubble burst, a penny-pinching generation has come of age knowing only economic malaise, stagnant wages and deflation—a condition where prices fall instead of rise.

The belief that deflation will continue has become so ingrained it has presented seemingly insurmountable challenges to monetary policy, a lesson for other countries that are traveling a similar path.

“It is hard to change the deflationary mind-set even with radical policies,” says Frederic Neumann, co-head of Asia economics for HSBC. “I would argue Japan will remain in its funk and will remain there for many years.”

PG View: I would suggest Japan may be stuck indefinitely . . .

So, is the Fed moving ever-so-slowly in the opposite direction in recognition of this harsh reality? Or are they just giving themselves a little clearance above the zero-bound so they can do more if it?

Posted in Central Banks, Monetary Policy, Negative interest rates, QE |

U.S. consumer confidence jumped to 114.8 in Feb, above expectations of 111.0, vs negative revised 111.6 in Jan.

Posted in Economic Data |

Chicago PMI surged to 57.4 in Feb, above expectations of 53.0, vs 50.3 in Jan.

Posted in Economic Data |

Gold starts the year off strong—and some say it’s about to get even better for bullion

CNBC/Rebecca Ungarino/02-27-17

Gold edged higher in Monday trading, rising to a three-month high of $1,264.90 per ounce, and some strategists see the yellow metal moving up in the near term as investors flock to the safe-haven asset in the face of global political uncertainty.

Gold is on pace to log its second straight month in the green; it hasn’t logged such a streak since summer of 2016, in the midst of Britain’s vote to leave the European Union and the U.S. presidential campaigns. Interestingly enough, stocks and gold are rising simultaneously. Gold is up nearly 10 percent year to date as the S&P 500 is up nearly 6 percent in the same time. This time last year, gold was up 15 percent on the year while the market was in the red nearly 5 percent. The commodity tends to move opposite the market as investors see gold as a safe investment in times of a market downturn.

Posted in Gold News, Gold Views |

U.S. Case-Shiller home price index for 20-cities +0.3% in Dec to 192.6 (nsa), vs negative revised 192.0 in Nov.

Posted in Economic Data |

Morning Snapshot: Gold firms as Q4 GDP disappoints and trade deficit balloons

USAGOLD/Peter A. Grant/02-28-17

Gold edged modestly higher after the Q4 GDP second report failed to see the upward revision that was expected. GDP in the last 3-months of 2016 held steady at 1.9%, which probably tempers rate hike expectations somewhat.

In addition, the U.S. trade deficit ballooned to -$69.2 bln. “This is the second largest deficit since August 2008,” according to the ZeroHedge blog and adds to the case that Q1 GDP could come in below 2% as well.

Dollar strength continues to be a big factor in driving the growing trade imbalance. I think it behooves the Fed not to do anything at this point to further buoy the dollar.

Later this morning we’ll see Case Shiller home price index, Chicago PMI, consumer confidence and the Richmond Fed index; along with Fedspeak from Philly Fed’s Harker, SF Fed’s Williams and St. Louis Fed’s Bullard.

This evening, President Trump will give his first address before a joint session of Congress. Focus will be on proposed fiscal spending, tax and regulatory reforms.

Posted in Gold News, Gold Views, Snapshot |

U.S. advanced goods trade gap widened to -$69.2 bln in Jan, outside expectations of -$65.9 bln, vs revised -$64.4 bln in Dec.

Posted in Economic Data |

U.S. Q4 GDP (2nd report) unchanged at 1.9%, below expectations of 2.1%, vs 1.9% prelim and 3.5% in Q3.

Posted in Economic Data |

Gold steady at 1253.93 (+0.36). Silver 18.33 (+0.01). Dollar easier. Euro higher. Stocks called easier. U.S. 10-year 2.36% (-1 bp).

Posted in Markets |

Gold bulls bet on uncertainty over US stimulus

FT/Henry Sanderson/02-27-17

While equity investors want Mr Trump to use his address to Congress on Tuesday night to supply greater details on his economic stimulus plans, gold bulls will be betting that the uncertainty over exactly what the White House will deliver is going to persist.

Hedge funds, for example, early last week lifted their net long position in gold futures by just over a fifth to the highest level since November, according to data from the Commodity and Futures Trading Commission. At the same time, the largest gold-backed exchange-traded fund had $1.5bn of inflows so far this month.

Posted in Gold News, Gold Views |

Gold in longest winning streak in more than a month

FT/Mamta Badkar/02-27-17

Gold prices advanced for a fourth consecutive day and were poised for their longest winning streak in more than a month as investors await US president Donald Trump’s remarks to Congress on Tuesday.

…The advance also comes as money managers and hedge funds increased their net long positions on gold, according to data from the Commodity Futures Trading Commission released on Friday.

Posted in Gold News, Gold Views |

Trump pledges to spend ‘big’ on infrastructure

CNBC/Jacob Pramuk/02-27-17

President Donald Trump on Monday pledged “big” infrastructure spending, putting focus on a key campaign proposal that has taken a back seat in the first month of his administration.

Speaking to a group of governors at the White House, Trump said he will make a “big statement” about fixing roads and bridges in his Tuesday night address to a joint session of Congress. So far, the Republican-controlled Congress has not seen Trump’s infrastructure spending pledge as a priority amid efforts to repeal the Affordable Care Act and pass tax reform.

“I’m going to have a big statement tomorrow night on infrastructure,” Trump said. “We spend $6 trillion in the Middle East and we have potholes all over our highways and our roads … so we’re going to take care of that. Infrastructure — we’re going to start spending on infrastructure big. Not like we have a choice. It’s not like, oh gee, let’s hold it off.”

Posted in Debt |

The Daily Market Report: Gold Continues to Trend Higher

USAGOLD/Peter A. Grant/02-27-17

Gold continues to pressure the upside, extending to a new high for the year at 1263.87, up nearly 10% year-to-date. That in fact puts the yellow metal at it’s highest level since early-November of last year.

Gold has continued to take out successive technical levels in recent weeks. As the post I put up earlier notes, the 200-day moving average at 1261.13 was the latest to fall by the wayside, adding additional credence to the emerging uptrend.

Today’s data were mixed, with durable goods orders and the Dallas Fed Index beating expectations and existing home sales coming in well below expectations. Gold seemed to take its cue from the latter, pushing to those new highs.

Most of this week’s focus is on President Trump’s address to a joint session of Congress on Tuesday evening. He said today that he’s “going to have a big statement tomorrow night on infrastructure.” He went on to say that the plan is “to start spending on infrastructure big.”

Let’s hope he also says something about how that big spending is going to be paid for. My guess would be big debt, which could be problematic if the Fed is continue tightening monetary policy.

Dallas Fed President Robert Kaplan pointed out that even “a few” rate hikes would leave policy “highly accommodative.” Kaplan went on to suggest that there might be a new normal for normalization of 2.25% to 2.5% area. He sees that as the neutral rate.

That however, is well below where the previous three tightening cycles ended: 5.25% (2004-2006), 6.50% (1999-2000) and 6.00 (1994-1995). In fact, it would be well below half of the average of the previous tightening cycles.

Posted in Daily Market Report, Gold News, Gold Views |

Gold rally extends to fourth day as breakout continues above 200-dma

Forex Live/Adam Button/02-27-17

Gold is now the best-performing commodity year-to-date as it surpasses copper. It’s also one of the best performing assets overall and volatility has been low.

The slow climb this year has largely erased the losses since the election but there is still some work to do.

Last week, I wrote that a test of $1300 looked “awfully appetizing” and noted that the 200-day moving average was one of the levels standing in the way. It gave out today in another green light.

Posted in Gold News, Gold Views |

Dallas Fed Index rose to 24.5 in Feb, above expectations of 19.4, vs 22.1 in Jan.

Posted in Economic Data |

U.S. NAR pending home sales index -2.8% to 106.4 in Jan, well below expectations of +0.6%, vs positive revised +0.8% in Dec.

Posted in Economic Data |

Morning Snapshot: Gold remains well bid near 15-week highs from Friday

USAGOLD/Peter A. Grant/02-27-17

Gold starts the week just off the 15-week high set on Friday at 1260.12. With both the dollar and stocks lower, the downside for the yellow metal is seen as limited.

Durable goods orders for January came in above expectations at +1.8%, driven by both defense and non-defense aircraft orders. December was revised lower to -0.8% from -0.5% previously. However, ex-trans fell 0.2%, below expectations of +0.5%.

Later this morning we have January pending home sales index and the Dallas Fed Index, as well as FedSpeak from Dallas Fed President Kaplan.

Adding an additional layer of uncertainty to an already uncertain global political picture — which has been broadly supportive to gold — are expectations that Scotland will ask for another referendum to leave the UK. Continue to view downticks as buying opportunities.

Posted in Gold News, Gold Views, Snapshot |

Scotland to demand new referendum, No 10 fears

Times of London/Oliver Wright & Lindsay McIntosh/02-27-17

Theresa May is preparing for the Scottish government to call a second independence referendum to coincide with the triggering of Article 50 next month.

Senior government sources say there is serious concern that Nicola Sturgeon will use the start of the Brexit process to demand another vote on the future of the UK and that Whitehall is planning for that event.

Posted in Geopolitical Risks |

U.S. durable good orders +1.8% in Jan, above expectations of +1.6%, vs negative revised -0.8% in Dec.

Posted in Economic Data |

Gold easier at 1254.50 (-3.31). Silver 18.35 (-0.023). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.34% (+3 bps).

Posted in Markets |

Week in Review (Video) – February 24, 2017

Posted in all posts |

How France scrapping the euro could go beyond a ‘Lehman moment’

CNBC/Karen Gilchrist/2-24-2017

“Make no mistake, there is the world of difference between tearing up bilateral and multilateral trade agreements, and, unwinding a monetary union as far reaching in scope as the EMU (economic and monetary union) project,” Deutsche Bank said in a note Tuesday. “It is the difference between a benign global risk event and something that has the potential to go beyond a ‘Lehman’s moment’.

MK note:  Two essential mental plug-ins come to mind.  One, Marine LePen who promises a Frexit referendum is ahead in the polls.  Two, the last time France voted on the EU it was on the question of a European constitution and it voted “against.”  Note Deutsche is not calling Frexit a “Lehman moment,” but “beyond a Lehman moment.”

Posted in all posts |

The Daily Market Report: Gold Surges Into the Weekend

USAGOLD/Peter A. Grant/02-24-17

Gold extended to the upside on Friday to set more 15-week highs. The yellow metal remains buoyed by broad-based political and geopolitical uncertainty, which is driving haven interest. A softer dollar and weaker stocks into the end of the week is helping the cause as well.

Concerns about rising inflation and an absence of growth calls the Fed’s next move into doubt as well. It’s perhaps too early to start talking about stagflation, but you have to wonder which poison the central bank might choose.

Do they raise rates to temper inflation, at the expense of growth? Or do they go on hold for the time being to encourage growth, at the expense of above-target inflation?

Fed Chair Yellen categorized growth as “quite disappointing.” Meanwhile, Treasury Secretary Mnuchin suggested this week that fiscal reforms that are on the Trump administrations agenda are going to take some time to implement and any positive results are likely even further down the road. Mnuchin said that it may take until the end of next year to see “sustainable growth of 3% or more.”

Were it not for the credibility issue, I suspect the Fed would be quite happy to take March off the table. We’ll see what happens . . .

And then there is the wildcard that is Europe; which could change everything. There are a number of elections coming up with potential “-exit” implications. “The strength of far right candidates in upcoming European elections is also reason for investors to flock to the haven asset,” Nitesh Shah commodities strategist with ETF Securities to CNBC.

Posted in Daily Market Report, Gold News, Gold Views |

U.S. new home sales +3.7% to 0.555M pace in Jan, below expectations of 0.570M, vs negative revised 0.535M in Dec.

Posted in Economic Data |

University of Michigan sentiment (final) 96.3 in Feb, above expectations of 96.0, vs 95.7 prelim and 98.5 in Jan.

Posted in Economic Data |

Gold prices soar as the post-election Trump trade begins to unwind: Saxo Bank

CNBC/Sam Meredith/02-24-17

Gold prices have increased to highs not seen since U.S. President Donald Trump secured election victory in November as investors appear to seek respite in the so-called safe haven.

“(Gold price) support has come from the unwinding of the post-election Trump trade, which has seen bond yields and the U.S. dollar both move lower,” Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, said in a note on Friday.

The price of gold crept over the $1250 per ounce threshold for the first time in over three months on Friday.

Posted in Gold News, Gold Views |

Gold set for fresh 3-month high as dollar slides

MarketWatch/Sara Sjolin/02-24-17

Gold pushed higher for a second straight session on Friday, steering toward its highest settlement price in more than three months, as metals across the board were boosted by a weaker dollar.

…Specifically for gold, Perry said the recent moves higher have opened up more upside for the metal.

“Breaking higher from the recent range between $1,220-$1,244 implies a $24 upside target to $1,268, whilst the move above minor resistance at $1,251 early this morning means that the upside into the high $1,200s should not be ruled out,” he said Friday.

Posted in Gold News, Gold Views |