Gold and silver are rebounding this morning, erasing six-week lows hit in London overnight. We may be seeing a delayed reversion to normal gold activity in March as the Crimean crisis cools down. Analysts at UBS note “Our price database, dating back to 1972, shows that March is typically a month for reversals.”
Platinum and palladium seem to be experiencing profit-taking, as rumors of South African labor union AMCU losing support among the rank and file for continuing the 9 week old strike against platinum mining companies grow. Anonymous reports to authorities by some workers say that they would agree to the mining companies' offer of a 9% pay raise (inflation is only 5.6%) and return to work, but they don't want to be killed by union enforcers. Several workers from other unions have been beaten and killed while attempting to go to work during the strike.
The dollar, which was also lower overnight is recovering, with the DXY dollar index back (barely) above 80. Despite good economic news out of the U.S., and the Fed planning to raise benchmark interest rates as soon as next summer, the dollar has struggled this year.
Speaking of that good economic news, GDP for the fourth quarter of 2013 was reported today to have hit 2.6%, down from a big 4.1% in the third quarter. The fourth quarter numbers were roughly what the markets had expected. Inflation in the fourth quarter hit 1.5%, with core inflation at 1.8%. Core inflation strips out food and energy costs. Lower food costs in the last three month of the year brought overall inflation down.
Looking at these numbers, and recalling the huge price spikes in food that have occurred in the last three months, and we could see inflation suddenly jumping over the Fed's preferred 2% rate for the first quarter of 2014. Will the droughts in the western US and severe weather in the Midwest start a snowball effect and combine with the asset price inflation that quantitative easing has already caused? If so, there's little the Fed can do, with benchmark interest rates already at 0% to 0.25%.
St. Louis Fed president James Bullard yesterday warned in a speech that the Fed's quantitative easing could be promoting asset bubbles, even while it slowly reduces the amount of liquidity it is pumping into the economy - "only" 55 billion dollars every month now. Bullard said that talk of setting the target interest rate at 4% instead of 2% before they Fed would raise benchmark rates was "dangerous." As noted above, the Fed may have already waited too long.
Speaking of quantitative easing, Germany's central bank may be changing its mind about the whole money printing thing, The head of the Bundesbank has signaled that buying bonds and mortgages from banks, in hopes that the banks will make more loans and jump-start the economy and cause inflation to rise, might not be such a bad thing after all. Germany will have to clear this with the European Central Bank, since they have the euro for their currency.
Back in the U.S., first-time jobless claims last week showed a surprising drop, as 10,000 fewer people were shown the door by their boss. This dropped first-time claims down to 311,000 last week. The four-week rolling average dropped 9,500 to 317.750. With the GDP numbers, you'd think that Wall St. would be happy campers this morning, but that isn't the case. Stocks opened lower due to the banking sector.
The Fed has forbidden Citigroup, the nation's third-largest bank, to increase dividends or buy back stock. Citi, along with four other banks, did not show sufficient strength during the Fed's recent "stress tests" designed to see if the financial sector could survive another 2008 crisis. Bank of America/Merrill Lynch and even Goldman Sachs had to reduce the amount they wanted to increase dividends to get permission from the Fed.
In Europe, stocks were higher in early trading as Alcatel landed a huge telecom contract with China Mobil, but lost those gains on disappointing earnings reports later in the day. The IMF threw the new government in Ukraine a lifeline, with a combined $27 billion in loan guarantees as Kiev tries to get it's financial house in order after years of corruption by Yanukovych and his inner circle led to billions of dollars missing.
Stocks in Tokyo hit a two-week high, as rumors abounded that pension funds were about to buy into the market. The Hang Seng and Shanghai composite indices were lower, as were South Korean stocks, as the IPO of King Digital, maker of the game "Candy Crush Saga", flopped terribly. This led to an exodus from similar companies.