The dollar gave up gains in Asia overnight, as EU inflation came in higher than expected, printing the first positive reading since November. Bonds of the "peripheral" EU nations of Italy, Spain, and Portugal were hit hard, with yields rising to the highest point so far this year. The euro gained a whopping 1.5% against the dollar, giving some relief to crude oil and gold.
Gold recovered to post modest gains early in New York, while hope of resolution to the Greek drama limited safe haven demand. Wall St opened lower on Greek concerns and uncertainty over the Fed's timetable for the first hike in interest rates from near-zero since the 2008 financial crisis.
Yesterday in the Markets
Stocks were rescued by the better than expected construction spending report yesterday, which also rescued the dollar. Gold hit a high of $1,205 an ounce before succumbing to the dollar rally, closing just $1.20 lower. Silver was flat, while the PGMs saw modest losses.
Bonds were lower, with the yield on the 10-year Treasury note gaining 6 basis points, and bonds in Italy, Spain, and Portugal were hit over fears of a domino effect if Greece defaults on its debt.
Factors Affecting Gold Today
German Chancellor Angela Merkel called an emergency meeting in Berlin Monday night with leading European officials, in an effort to rescue Greece from bankruptcy. European Central Bank President Mario Draghi, IMF President Christine Lagarde, French President Francois Hollande, and European Commission President Jean-Claude Juncker all flew in to participate.
Hopes are that a deal has been reached between Greece's creditors that will save the country from default, and release the last tranche of bailout funds before the deadline of June 30. This depends on Greece agreeing to the terms. Socialist prime minister Tsipras this morning was puffing out his chest and declaring that Greece is the one that sets the terms, not the creditors.
Despite the economic hazard of a Greek default, the ECB quantitative easing seems to have combined with steadier oil prices to lick EU deflation, at least for one month. Consumer inflation in the EU as a whole rose 0.3%, from 0% the previous month. Analysts were expecting a 0.2% increase. Core CPI rose 0.9%. This is the first positive inflation reading since November.
The news hit bonds of the troubled southern EU countries hard, with yields spiking to 2015 highs for Italy, Spain, and Portugal. Buyers were in short supply as liquidity dried up, forcing yields even higher. Experts have been warning about the decreased liquidity in the bond market, and this may be a taste of what's to come, when everyone wants to sell, and no one wants to buy.
Crude oil is up modestly, as the drop in the dollar steepened after factory orders came in worse than expected. Orders were down by 0.4%, compared to the expected 0.1% drop. This is a big fall from the +2.2% last month.
Germany, France, the UK, and the EU as a whole report PMI tomorrow. Composite retail sales and unemployment for the EU is on tap, as well a a policy announcement from the ECB.
The ADP employment report tomorrow is expected to give a clue as to which way the official non-farm payroll report will swing on Friday. Other US reports include Services PMI, crude oil stockpiles, and the Fed's Beige Book of economic conditions.