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Monthly Archives: May 2017
U.S. new home sales plunged 11.4% to 569k pace in Apr, well below expectations of 612k, vs positive revised 642k pace in Mar.
President Donald Trump’s budget proposal is likely to help produce 1.9 percent economic growth, not 3 percent, former Office of Management and Budget Director Jim Nussle told CNBC on Tuesday.
Nussle’s comment came the morning after Trump’s proposed fiscal 2018 budget became public. The White House said it is a key component in pushing economic growth to 3 percent.
The Congressional Budget Office currently estimates, however, growth at about 1.9 percent and the Federal Reserve projects the economy will expand at a 1.8 percent annual rate.
Gold is up nearly 10 percent this year and might be primed for more gains if a signal tracked by technical analysts triggered Monday is any guide.
A small gain was enough to push the metal’s 50-day moving average price above the average price of the last 200 days, forming what’s known as a “golden cross” in technical analysis circles. This is seen as a positive signal that demonstrates an asset is outperforming so well in the short-term that it may reverse a longer term downtrend.
PG View: The golden cross occurred in the spot market two-weeks ago, confirmation in the futures offers further encouragement.
U.S. Markit manufacturing flash PMI slipped to 52.5 in May, below expectations of 53.0, vs 52.8 in Apr.
Gold dipped modestly in the wake of the Manchester terror attack as Sterling fell, pushing the dollar lower. However, market moves in the immediate wake of the attack have largely been reversed. Sterling is now slightly higher on the day, the dollar is back on the defensive and gold is back within striking distance of yesterday’s highs at 1263.76.
The negative dollar and positive gold trends remain intact. Fresh highs this week would shift the technical focus to the high for the year at 1295.03.
Geopolitical tensions rose after the Indian army fired artillery on Pakistani military posts across the “line of control.” The Times of India described it as a “punitive” artillery assault in retaliation for the Pakistan military aiding infiltrators to the Indian side.
The U.S. calendar has April home sales, Markit flash PMIs and the Richmond Fed index. We’ll hear FedSpeak from Kashkari and Harker, as well as ECBSpeak from Coeure.
Gold was little changed on Tuesday as the dollar steadied near 6-1/2 month lows and traders locked in profits following two weeks of gains, shrugging off heightened political risk following a deadly suicide attack in Britain.
The blast, which killed at least 22 people, weighed on sterling versus the dollar, but the U.S. currency was flat versus a currency basket following recent sharp falls, leaving little to prompt investors to bet bullion higher.
“Gold is taking a breather once again, its struggling to make it out of this $1,245-$1,265 range,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Gold easier at 1260.59 (-2.71). Silver 17.25 (+0.051). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.24% (-1 bp).
Gold on Monday extended its biggest weekly gain in five weeks as the U.S. dollar fell against the euro, while U.S. political turmoil fuelled demand for bullion as a safe haven and reduced expectations of rapid U.S. interest rate rises.
…The metal advanced by 2.2 percent last week as the furore over U.S. President Donald Trump’s alleged links to Russia and his firing of former FBI chief James Comey raised concerns about his ability to push through promised fiscal stimulus.
That caused a rush to safe-haven assets such as gold and drove U.S. stocks, the dollar and U.S. bond yields lower, reducing the opportunity cost of holding non-yielding bullion and making gold cheaper for holders of other currencies.
Gold remains generally well bid, with last week’s high at 1265.01 within striking distance. Above that — given the favorable technical posture — the high for the year at 1295.03 would be looking pretty attractive.
Political and geopolitical tensions are helping to keep the yellow metal underpinned. Continued pressure on the dollar is helping to buoy gold as well. The dollar index has extended to new 6-month lows toda, pushed by euro gains.
In answering a question as to why Germany continued to maintain a high trade surplus, Angela Merkel said that “the euro is too weak,” suggesting that ECB policy was too accommodative. With more hawkish rumblings emanating from the central bank this year, Merkel’s comment may have lent some credence to calls for some movement toward policy normalization later this year.
If Chancellor Merkel thinks the euro is too weak, and President Trump thinks the dollar is too strong, it seems like there may be a path of least resistance for that currency pair. That would bode well for gold, which is priced in dollars.
Uncertainty about U.S. growth prospects could put further pressure on the greenback if the Fed adopts a more dovish tact later in the year. Right now, markets remain fairly convinced that another 25 bps rate hike is coming in June. Fed funds futures put the probability back at 78%, but chances of an additional 25 bps in September at just 24.5%.
While silver prices seem to be lagging, it may be time for investors to love the grey metal again, one analyst points out.
“Investment in gold (and silver even more so, are worthy of very careful consideration),” said Matthew Worley, research analyst and economic contributor for London-based World First, in a Seeking Alpha post Thursday.
“In an investment environment where central banks have flooded monetary reserves, equities are hitting all-time highs, 10 year U.S. Treasury yields barely eclipse 2%, and real estate markets show excesses internationally, take a long look at assets undervalued and unloved. It just makes sense.”
…“The disparity of the price of silver versus gold is what currently makes physical silver a strong buy,” he added.
The Democratic People’s Republic of Korea conducted another missile test.
It comes just a week after the U.N. Security Council once again demanded Pyongyang halt its weapons programs.
…The latest launch followed the testing of a mid-to-long range missile just a week ago. The test indicated that Pyongyang had mastered the heat shields that could protect a nuclear weapon on re-entry.
On May 10, gold launched a decisive turnaround from its most recent decline.
This kept intact the pattern I’ve been writing about for weeks of “higher highs, and higher lows” as every retreat finds a footing higher than the one before and each new high reaches new, higher ground.
…Each time gold retreated from those highs, it found a new bottom at a higher price than the time before. The recent low was $1,218/oz on May 10. In this new spike, gold has now rallied to $1,251 as of early Friday.
If this pattern holds, the next stop is $1,300 or higher.
Gold prices firmed Monday, looking to add to the their largest weekly gain since mid-April, as declines in the U.S. dollar index and a modest rise in equities helped to support bids for precious metals.
…Gold scored a roughly 2.1% advance for last week, a trading stretch marked by rising volatility and political unrest in the White House. That was the largest such gain since the week ended April 13. The yellow metal has climbed in seven of the past eight sessions.
Still, “rhetoric suggesting the central bank remains on track to raise rates next month despite recent U.S. political jitters may weigh on gold” as the week goes on, said Ilya Spivak, currency and commodities strategist with Daily FX.
Marketmen said a firm trend overseas, as recent political events in the US continued to weigh on the greenback and boost demand for safe-have assets, coupled with pick up in buying by local jewellers at domestic spot markets led to the recovery in gold prices.
Gold is edging higher, buoyed by new 6-month lows in the dollar index. Silver has regained the 17 handle, rising more than 1% to set new 2-week highs.
The euro jumped in overseas trading after Angela Merkel said the German trade surplus was so high because the “the euro is too weak.” She laid this at the feet of the ECB, which may lend some gravity to speculation about initial moves toward policy normalization later in the year.
The Chicago Fed National Activity Index rose to 0.49 in April, versus a negative revised 0.07 in March. That’s about it today, besides a full raft of FedSpeak from Harker, Kashkari, Brainard and Evans.
The euro climbed to a fresh six-month high on Monday as the currency rebounded against the US dollar.
…The moves came after Angela Merkel, the German chancellor, told school students in Berlin that “the euro is too weak”, which she attributed to European Central Bank policy.
“The context she was saying this in was in her description over why Germany has such a high trade surplus but the euro moved anyway,” said Peter Boockvar, chief market analyst at The Lindsey Group.
Gold higher a5 1258.79 (+3.51). Silver 17.09 (+0.205). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 2.24% (+1 bp).
The dominant trend in the gold market remains positive, despite the recent multi-week pullback. The yellow metal appears poised to end the week with a 1.8% gain, the biggest in more than a month.
The technical picture remains constructive with gold holding above key moving averages. The 50-day MA remains above the 200-day MA, sustaining the “golden-cross” that occurred late last week. When the 50-day moves above the 200-day moving average, it is typically interpreted as a rather bullish event, hence the name.
Gold is proving quite resilient today in the face of a rebounding stock market. Stocks were lifted by dovish FedSpeak, but heightened political and geopolitical risks are likely to continue underpinning the yellow metal.
St. Louis Fed President James Bullard acknowledged that both growth and inflation data have been pretty soft of late. “FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance,” said Bullard.
I have maintained that the primary goals of the Fed’s tightening into weak growth, is to prick the stop market bubble and to replenish the central bank’s ammunition in case of more pronounced growth risks and/or deflationary pressures. Minneapolis Fed President Neel Kashkari warned this week that, “Monetary policy should be used only as a last resort to address asset prices, because the costs to the economy of such a policy response are potentially so large.”
So what is the Fed to do at the June 13-14 FOMC meeting, given still relatively buoyant stocks and the worsening risk that the economy stumbles in the face of the considerable headwinds now facing President Trump’s fiscal policy agenda? Rate hike expectations have ebbed recently, but there’s still several weeks to go before the FOMC convenes.
In today’s “Futures in Focus,” Phil Streible of RJO Futures discusses the outlook for oil markets and gold. He speaks with Mark Barton on “Bloomberg Markets.”
The central bank’s mandate is low, stable inflation and maximum employment, and Fed officials monitor a range of indicators to assess progress on those two goals.
But the Fed may be keen to hike rates for another reason: reigning in what it sees as excessively high prices in stocks and other financial markets.
If that’s its intention, it goes against what Fed Chair Janet Yellen and other key members of the rate-setting Federal Open Market Committee have said they would do.
… Neel Kashkari, the Minneapolis Fed president who is seemingly the last true remaining dove at the central bank, however, makes a solid case in an essay this week as to why this is a terrible idea. Here are his bullet points on the Fed’s limitations from the essay:
1. It is really hard to spot bubbles with any confidence before they burst.
2. The Fed has limited policy tools to stop a bubble from growing, even if we thought we spotted one.
3. The costs of making policy mistakes can be very high, so we must proceed with caution.
4. What we can and must do is ensure that the financial system is strong enough to withstand the inevitable bursting of a bubble.
5. Monetary policy should be used only as a last resort to address asset prices, because the costs to the economy of such a policy response are potentially so large.
The good times are back in the eurozone.
A measure of consumer confidence has hit a pre-financial crisis peak this month, reaching its best level in a a decade as the continent has shrugged off populist political risks in 2017.
The European Commission’s monthly sentiment gauge gained 0.3 points to hit -3.3 in May – its best level since July 2007.
PG View: Aside from the negative number itself, this article fails to mention that consumer confidence hasn’t been positive since the euro launched nearly 20-years ago.
• On balance, the U.S. macroeconomic data have been relatively weak since the March FOMC meeting.
• U.S. inflation and inflation expectations have surprised to the downside in recent months.
• Labor market improvement has slowed over the last two years.
• Low unemployment readings are probably not an indicator of meaningfully higher inflation over the forecast horizon.
• Real GDP growth measured from one year earlier has averaged just 2.1 percent over the last seven years.
• The last two years have shown very little change in year-over-year real GDP growth.
o 2015-Q4: 1.9 percent; 2016-Q4: 2.0 percent.
• A natural conclusion is that the economy has converged upon a growth rate of about 2 percent.
• Is the U.S. economy likely to move meaningfully off of this trend in 2017?
o The short answer is no.
• Financial market readings since the March decision have moved in the opposite direction:
o longer-term yields have declined,
o inflation expectations have weakened, and
o market expectations of the policy rate path have declined.
• This may suggest that the FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance.
US airstrikes targeting pro-Assad forces close to the Iraqi border have been branded “completely unacceptable” by Russia.
Coalition warplanes targeted a convoy of Syrian government forces and Iranian-backed militia close to the Iraq border on Thursday.
The action was to protect British and American special forces based in al Tanf, southeast Syria.
Morning Snapshot: Gold recovers from overseas losses as focus remains on political and geopolitical tensions
Gold is trading modestly higher after failing to sustain overseas losses. The yellow metal initially dipped to 1245.10 as the dollar staged a rebound, but the gains in the greenback could not be sustained.
Today’s U.S. calendar is empty, so focus will remain squarely on U.S. political turmoil, which is threatening to derail President Trump’s reflation agenda. In the absence of promised fiscal stimulus, the U.S. economy will likely remain confined to tepid growth and perhaps sets the stage for recession.
This will raise doubts at the Fed, as to their next policy move. Continued rate hikes into weak growth certainly heightens the likelihood of recession. How close to the tipping point is the Fed willing to go?
Geopolitical tensions are heightened today as well after U.S. warplanes attacked a pro-Assad military convoy. Both Syria and Russia have condemned the attack. Reports suggest that there may have been Iranian embedded with the Syrians as well.
Gold higher at 1253.56 (+4.25). Silver 16.85 (+0.183). Dollar lower. Euro lower. Stocks called higher. U.S. 10-year 2.24% (+1 bp).
Gold has turned modestly defensive intraday following a round of positive U.S. economic data that buoyed stocks. However, the shadow of U.S. political uncertainty continues to hold sway on markets.
The yellow metal remains above the 200-day moving average and more than 61.8% of the entire decline from 1295.03 to 1213.60 has been retraced. This presents a generally favorable technical picture, which bodes well for the underlying uptrend that emerged in the wake of last December’s Fed rate hike.
With new accusations against the Trump administration surfacing on a daily basis, the President’s economic agenda may be severely hamstrung. They will be spending an inordinate amount of time and energy defending themselves, rather than advancing key legislation.
The dollar has already retraced all of its post-election gains. It is not unreasonable to think stocks may suffer the same fate. That would equate with about another 13% decline in the DJIA from the present level.
As doubts about fiscal stimulus and tax reform grow, Fed rate hike expectations have steadily eroded. The CME’s FedWatch tool now puts the probability of a 25 bps hike in June at 64.6%.
Even as growth risks mount, the Fed announced yesterday that household debt grew to a record high of $12.73 trillion in Q1. The previous high was established in Q3-08, just as Lehman Brothers collapsed and the financial crisis really gained momentum.
At its core, the financial crisis was a debt crisis. Policymakers the world-over — and seemingly U.S. households as well — opted to paper over the crisis with more debt. When the next crisis erupts, I’m not so sure the policymakers will be able to pull us back from the brink because the debt loads are so significantly higher than they were in 2007-2008.
Be prepared. Buy gold.
Republicans’ long-held dreams of tweaking Medicaid, repealing Obamacare and overhauling the tax code appear in more jeopardy than ever as scandal and investigations beset President Donald Trump’s White House.
Some Republicans fear that subpoenas and congressional inquiries will swamp the time they need to pass a health care or tax bill in 2017 — not to mention renegotiate NAFTA, unify behind a $1 trillion infrastructure plan or build that border wall.
“Everything affects our work right now. The more controversy we have the more difficult it is to do things,” said Senate Finance Chairman Orrin Hatch (R-Utah). “But this place is filled with controversy, so if you don’t understand that, you’re in the wrong job.”
Gold eased on Thursday as a bounce in the dollar prompted some buyers to cash in gains after its biggest one-day rally in nearly a year, though uncertainty over the outlook for the Trump presidency underpinned the metal near two-week highs.
Gold surged nearly 2 percent on Wednesday, its biggest one-day jump since Britain’s June vote to leave the European Union, on reports that U.S. President Donald Trump had tried to intervene in an investigation into alleged Russian interference in last year’s U.S. election.
…”(Gold) is seeing a pullback after yesterday’s strong performance — it needs to take a breather,” said Heraeus precious metals trader Alexander Zumpfe. “It ran into resistance towards $1,260.”
PG View: Stocks recouped much of this morning’s follow-on losses after a round of generally favorable U.S. economic data, weighing on gold.