Gold is maintaining a generally firm profile, having established a new 5-week high at 1270.45 in earlier trading. Geopolitical and political concerns, renewed dollar weakness and fresh worries about waning inflationary pressures are all helping to underpin the yellow metal.
Focus this week is on Friday’s job report. Median expectations are for 182k nonfarm payrolls. The jobless rate is expected to hold steady at 4.4%.
Further out, the next FOMC meeting is on June 13-14. As revealed in minutes from the May meeting, incoming data (particularly inflation data) are going to be important in determining whether the present gradual tightening path is perpetuated, or there is a pause.
The third consecutive monthly decline in annualized core PCE that came out today may give the Fed some pause, but whether they actually do pause or not remains to be seen. The market doesn’t seem too concerned, with the probability of a June rate hike still close to 90% according to Fed funds futures.
Here’s what should be a greater concern to the Fed, given their current tightening trajectory:
Virtually every class of US debt — sovereign, corporate, unsecured household/personal, auto loans and student debt — is at record highs. — FT
It’s like we learned nothing at all from the financial crisis; a crisis that brought the financial systems to the very brink of collapse. Former Fed chair Ben Bernanke conceded in a private interview with the Financial Crisis Inquiry Commission that 12 of the 13 most important financial institutions were on the verge of failure in 2008.
“If you look at the firms that came under pressure in that period … only one … was not at serious risk of failure.” — Ben Bernanke
Everyone should remember that the global financial crisis that occurred about a decade ago was started by the U.S. subprime mortgage market. At the time, the value of American subprime mortgages was about $1.3 trillion.
Right now, student loan debt is more than that, at $1.44 trillion. Outstanding auto loans are nearly that much, at $1.17 trillion, and many fall into the subprime category.
In an echo of the subprime housing crash, delinquencies of US car loans are rising amid allegations of mis-selling. — FT
Total household debt now stands at a record $12.7 trillion. Our national debt is just about $20 trillion. The Fed’s balance sheet remains at $4.4 trillion.
You might have thought that the near financial catastrophe might have prompted people and institutions to deleverage. Clearly that has not been the case. Everyone — from the government, to the Fed, to individuals — decided to paper-over their debt problem with more debt. And what we have to show for it is a decade of lackluster growth and an even larger future problem.
It’s pretty simple really: If you want to get out of a hole, the first thing you have to do is ‘STOP DIGGING’.