The news this morning was that negotiating teams from Iran and a coalition of Western countries led by the U.S. have arrived at a preliminary agreement regarding Iran's nuclear program. The move should not only set into motion a gradual lifting of economic sanctions against Iran, but will also free up Iran's impressive crude oil stockpile (they are the world's 4th-largest reserves) for the open market. This helped drive crude oil prices lower this morning while also fomenting dissatisfaction with the Israeli government, which has denounced any deal with Iran as a mistake. The precious metals opened flat, though indications were that it may turn out to be a trading day in positive territory for the PMs.
Yesterday in the Markets
U.S. stock indices rose by more than 1.1%, with the Nasdaq leading the way. Optimism abounded as Greece reached a preliminary agreement with its creditors, accepting austerity in return for what will amount to a bridge loan that keeps the country afloat until it can reorganize its economy. The precious metals all fell back modestly except for palladium, which reversed direction to add about $10 per oz. Palladium has still been weak of late, losing nearly $100/oz (or about 12%) over the last month of trading. 10-year Treasuries rose 3 bp before returning to unchanged at 2.45%. Data also showed that the budget deficit fell to 7-year lows in June, thanks in part due to a sharp decline in imports during the labor disputes plaguing West Coast ports earlier in the year.
Factors Affecting Gold Today
U.S. retail sales fell 0.3% in June, roiling analysts who expected a 0.3% gain. This was especially disappointing data after retail sales rose 1% in May (following a downward correction of the numbers). The buzz in the markets is that the weak retail figures indicate a slowing of consumer activity as we enter the third quarter. Though this should be capping gains in equities, U.S. shares opened in the green this morning.
The dollar lost ground slightly on its competitors, losing 0.4% on the DXY index this morning to 96.5. This pushed the euro up to $1.105 and the pound sterling above $1.56. With crude oil pulling back in response to the Iran nuclear deal, the metals could move more slowly than would normally be expected with a softer dollar. Particularly now that the developments in Iran and Greece appear to be risk-off for investors, the precious metals are likely to remain in their seasonal summer swoon over the near-term, barring a decisive turn for the Greenback. The outlook for stocks is more muddled, as volatility continues to dominate trading.
There is also the unanswered question of where Greece goes from here now that it has finally agreed to a bailout deal. The package is reportedly around €86 billion ($96 billion) in total value, and requires Greece to place many of its state assets into an account that is expected to generate an additional €50 billion ($55 billion) once privatized. The new agreement was reached after 17 hours of grueling deliberation that carried from Sunday into the late morning hours on Monday.
Many feel that the deal Greece just accepted from its European creditors is actually worse than what was on the table 2 weeks ago before Greek PM Tsipras called for a referendum on the proposal. Capital controls still remain in place, and Greek banks will keep their doors shut for the time being. At minimum, now that Greece has agreed to a bailout, it can begin discussions with its creditors on some debt relief that should allow it to recapitalize its banks and reopen for business. The potential political fallout from accepting creditors' calls for austerity, however, will leave the status of Tsipras' Syriza party in doubt as they return to face their constituents.
Tomorrow is a busy day in the States: besides the EIA petroleum status report and the U.S. Beige Book, PPI for final demand and the Empire State manufacturing survey will be released, along with industrial production numbers.