Further escalation of tensions by China after declaring a naval and air defense zone over the disputed Senkaku Islands in the East China Sea saw stock indexes fall and gold and silver make substantial gains yesterday, The Chinese government is now demanding that all commercial air flights inform Chinese air defense when flying over or near the islands. The U.S. has condemned these demands as unnecessarily inflammatory.
Gold and silver had already seen a technical boost after the sell-off caused by the surprise deal between the major powers and Iran over Iran's nuclear program, so the escalating tensions in Asia provided a second boost. PGMs were mostly unaffected by the news, however. All four major precious metals have resumed trading in a tight range after the correction upward.
Oil is up after the fact sank in that the present round of Iran talks simply cancel further planned oil sanctions, and do not actually allow an increase in Iran's oil exports at this time. A more permanent deal would allow expanded oil exports, but experts say that it would take three to nine months for Iran to ramp up production.
The dollar is weaker today as both the euro and yen gain. The euro is benefiting from easing worries over a possible deflationary scenario, which has pushed back expectations of any ECB intervention. A decrease in liquidity has caused short-term market rates to climb, further reducing the need for central bank action.
Asian and Euro stocks used the China news to book profits as well as reduce exposure to downsides should the situation deteriorate.
On the heels of a report showing existing home sales at a 10-month low, the Case-Shiller home price index is reported to have risen 13.3% year over year, the biggest jump since the peak of the housing bubble in 2006. This follows a 12.8% y/y increase in August. While housing permits were reported to be at the highest rate in five years, they were dominated by permits for multifamily housing such as condos and apartment buildings, instead of single family homes.
Volumes are light across all markets as we head into the Thanksgiving holiday. Action will probably be limited to month-end rebalancing and profit-taking, barring any further escalation in China tensions.