In the wake of yesterday's Fed decision and this morning's ECB meeting, the precious metals were sharply higher. Gold touched as high as $1,310 per ounce before paring its gains. Thursday morning saw spot gold trade 0.3% higher (+$4) to $1,303/oz. Spot silver jumped 16¢ (+0.9%) to $17.16/oz, an eight-week high. In the meantime, platinum was back up to $905/oz while palladium traded mostly flat at $1,000/oz. Today is also Flag Day in the United States, so be sure to show your patriotic spirit!
Retail Sales, Jobless Claims, and Tariffs
This morning the Department of Commerce released data showing a 0.8% jump in retail sales during May. It was the biggest gain in six months
. The greater sales growth provides yet another sign of upward pressure on inflation. Indeed, the Fed raised interest rates another quarter-point (25 basis points) at the conclusion of yesterday's FOMC meeting. There were a few other developments that came out of the gathering. Some cautionary language about leaving the fed funds rate lower for longer was removed from the committee's statement. Interestingly, the rate on excess bank reserves held by the Fed was only increased 20 basis points to 1.95%.
Chair Jerome Powell also said
that every FOMC meeting will be followed by a press conference beginning in January. Up until now, the markets could count on the Fed not to make any policy changes at meetings that don't have a press conference scheduled. With inflation picking up, it now appears the Fed is likely to hike rates two more times this year. Global bonds saw renewed demand. The 10-year Treasury rose, pushing the yield back down two basis points to 2.95% after breaching 3.0% last night. The yield curve continues to flatten, however. The spread between two-year and 10-year notes in the U.S. fell to the lowest since 2007, separated by just 40 basis points. In other news, the Department of Labor reported that first-time jobless claims were down
4,000 to 218,000 new claims last week. Trade war concerns arose again today as the U.S. indicated it may enact sweeping tariffs against Chinese imports as soon as tomorrow. Officials in China stressed the need for cooperation and compromise, but vowed to retaliate
to any new trade barriers. Canada, Mexico, and the European Union (EU) have all made similar threats.
ECB Pledges Support Into Next Year
Most interpretations of today's meeting of the European Central Bank (ECB) tended toward a dovish perspective
. The central bank said it won't begin raising interest rates until at least the middle of 2019. This knocked the euro down 1.0% to $1.168. Accordingly, the dollar index
spiked 0.7% to 94.2. The pound sterling slipped 0.4% to $1.33 but the Japanese yen was unchanged at ¥110.3 per USD.
Yet ECB President Mario Draghi also reiterated his commitment to ending the bank's bond purchases (i.e. quantitative easing)
by the end of this year. In this sense, normalizing monetary policy may be difficult if the eurozone continues to experience political turmoil. Back in the U.S., many early estimates for second-quarter GDP are forecasting growth above 4%. This seems overly optimistic and mirrors initially overstated forecasts for the first quarter. Commodity prices were mixed due to the stronger dollar. WTI crude gained 0.5% to move above $67 per barrel while Brent crude was 0.2% below unchanged at $76.55/bbl. Crude prices in the U.S. were at a two-month low just a week ago. Wall St rose better than 0.5% in early trading Thursday. Stocks in Europe were also higher after the ECB meeting. Equities were up more than 1.1% in Germany and Paris, while stocks in London gained 0.55%. Shares slumped about 1.0% in Japan and were off 0.4% in China overnight. Indices fell 1.4% in Taiwan and 1.8% in South Korea, as well. The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.