Stocks Edge Higher, Gold and Silver have a Solid Session

Posted On: Tuesday, September 13, 2011

Stocks managed to eke out a modest gain in an uninspired trading session.  The theme remains the same as European sovereign debt issues top the list of headlines.  Germany's Angela Merkel reiterated in an interview her commitment to prevent an "uncontrolled Greek insolvency."  Meanwhile, Italy, with total debt of 1.9 trillion EUR - greater than Greece, Spain, Portugal, and Ireland combined - again tapped the bond market as it attempts to move forward with its refinancing needs.  Like yesterday, the bond auction was weak with a bid to cover of just 1.28 compared to 1.93 at the prior auction.  Yesterday's FT article on China's possible investment in Italy continues to be analyzed.  The bottomline is that Italy's total debt is so massive, that China as a white knight just doesn't seem entirely credible.  Furthermore, the FT article states that the talks occurred weeks ago.  This fact alone suggests yesterday's equity market, hockey stick save was built on a story of rather thin substance.  Today saw a similar rumor that Russia, and possibly even Brazil could be thinking of somehow helping Europe with its soveregin solvency issues. 

Precious metals had a solid day following some earlier weakness.  Spot gold prices fell below $1,800 per oz at one point this morning, but rebounded to trade up $21.55 at $1,836.92 per troy ounce.  Spot silver prices had fallen to $40 per troy ounce before moving in tandem with gold higher, ending up $0.72 to trade at $41.04 per troy ounce.

Commodities outside precious metals were mostly higher.  WTI crude futures were up $1.82 to trade $90.01 per barrel.  Copper futures gained $0.055 to trade at $3.971 per lb. 

Treasuries finished the day lower.  The yield on the 10-year Treasury rose to 1.99%.  The closing low for the 10-year Treasury is 1.91%. 

In economic news, import and export prices for August showed a 0.5% rise in export prices and a smaller than expected 0.4% fall in import prices.  Year over year, export prices rose 9.6% while import prices rose 13.0%.  No surprise here as inflation continues to run hot. 

The NFIB small business optimism index fell to 88.1 from 89.9 in September.  This was the sixth straight decline in the index, and highlights the weak state of the U.S. economy.

In other news, Bloomberg is reporting that the decision by U.S. money market funds to cut lending to European financials could force asset sales.  Analysts with JP Morgan report that U.S. money market funds of French money market instruments fell $47 billion in August.  

In a separate article, Bloomberg reports that more job cuts are looming for European banks.  With revenues shrinking and a high fixed cost base due to the decision to increase base salaries given the restrictions on bonuses, many European banks face no choice but to cut workers.  The article states that up to 70,000 job cuts have been announced since midyear.  This compares to 42,000 of jobs by U.S. peers. 

Reuters is reporting that "Greek Prime Minister George Papandreou will hold a conference call on Wednesday with French President Nicolas Sarkozy and German Chancellor Angela Merkel, Greek state television NET said on Tuesday."   

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