The dollar has been on a surge this week, aided in part by the settling down of the situation in Greece. Now that the parliament approved creditors' austerity measures and a new $7.6 billion (€7 billion) loan has been agreed to in principle, the markets are likely to view Greece and Europe with a risk-off attitude (despite what may be in store for the battered Greek economy and leftist government). The dollar advanced above 97.5 on the DXY index, driving the euro to about $1.085 and the yen above 124 per dollar. The precious metals trickled further back in the meantime, as gold fell about 0.5% to just below $1,145/oz, a fresh 8-month low. Silver and the Platinum Group Metals were further off, each down by more than 1%. Silver hovered just above $15/oz, while platinum and palladium threatened to fall through key support levels.
Yesterday in the Markets
The crude benchmarks continued to fall in the wake of the nuclear agreement with Iran. WTI fell by 2.8% to $51.55/bbl while Brent was off 2.25% at $57.20/bbl. 10-year Treasuries rose, sending yields 7 bp lower to 2.35%. While the metals extended their losing streak, stocks in the U.S. were trading sideways before slumping into negative territory as violent protests broke out in Athens. Though factory output slowed in June, the producer price index (PPI) rose by 0.4%.
Factors Affecting Gold Today
Jobless claims fell for the first time in 4 weeks, coming in at 281,000 new applications this week. The labor market has continued to offer positive signs throughout 2015 as employers in most sectors (excluding energy and mining) have been expanding their workforces. The shoring up of the job market should give a bump to the financial markets, though the situation may not be as rosy as the headline numbers might indicate: in spite of falling unemployment rates, the labor participation rate remains at its lowest levels in 4 decades, actual productivity has been abysmally low, and wages have been stagnant. Moreover, supposedly higher employment and cheap energy prices have not translated into consumer spending gains thus far.
European shares are on the rise today after hearing news of the deal passing the Greek parliament and the €7 billion bridge loan proposal. Finance ministers from the 28 member countries of the EU will be meeting later today to approve the same measures that were just pushed through by centrist legislators in Greece. After this, a second round of measures must pass the Greek parliament while negotiations regarding the bridge loan will continue.
ECB President Mario Draghi will also be holding a press conference today. He will field questions about the central bank's decision to hold interest rates at their current levels, with a refinancing rate of just 0.05%, while the deposit rate and marginal lending rate still in the negative. The ECB did, however, decide to increase the emergency liquidity assistance (ELA) to Greece and its banks—a decision that's not likely to play well in Germany and its Northern European neighbors, who contend that Greece must demonstrate greater fiscal responsibility and discipline as a precondition for still more aid. Though more quantitative easing may be in store in Europe, eventually the ECB (and the Bank of England) will follow the Fed in eventually raising their near-zero benchmark rates. Fed Chair Yellen will also be speaking today, wrapping up her second day of testimony in front of Congress by addressing the Senate Banking Committee.
Friday is another important day of new data: CPI, the consumer sentiment gauge, and housing starts will all be released tomorrow.