Gold is consolidating from its safe haven action of the last week, and retesting support at $1,355 this morning. It seems no one will be shooting at each other in Eastern Europe, as Western sanctions against Russia were only symbolic, and Russian president Putin used the occasion of a speech before the national assembly welcoming Crimea back into the loving arms of Mother Russia to announce that he had no further plans for conquest against Ukraine.
The speech led the yen to give up a bit of safe haven gains, yet it is still stronger versus the dollar due to the drop in the yuan and increasing nervousness over how bad things really are regarding Chinese corporate debt. The yuan is pushing against the edges of the recently-widened band of allowable movement set by the Peoples Bank of China, dropping to multi-year lows. The dollar is barely stronger this morning, in anticipation of more tapering to the Fed's "money printing" policy as the March FOMC meeting begins.
Wall St. is opening higher on the easing of tensions over Crimea, and reports that consumer inflation was up only 0.1% from January. Core CPI, which strips out food and fuel, also rose only 0.1%. Year over year inflation was only 1.1%, and 1.6% for core CPI. This should convince the Fed to keep benchmark interest rates low, and reduces the opportunity cost of holding gold.
Housing starts in the U.S. were down 0.2% in February, as fewer permits were pulled in January due to the severe winter storms. Permits caught up last month, rising 7.7% from January, mostly for multi-family buildings.
European stocks rose after Russian president Putin's speech, as the need for further sanctions decreased. The relief from this was greater than the disappointment in the German ZEW investor expectations index, which dropped again to 46.6 from 55.7 in February. Most of this drop was attributed to anticipation of greater sanctions against Russia, which is Germany's #1 supplier of oil and largest single trading partner.
Asian stocks were up across the board to varying degrees, led by the Nikkei rising 0.94% off a six-week low. The Shanghai index was only slightly in the green, on concerns over the corporate bond situation. The lower yuan helps Chinese exports compete on the global market.
Looking forward, the Chinese corporate debt crisis is now vying with the Fed's tapering of its quantitative easing program as the largest concern for global markets. Expect the Fed to drive the economic news cycle tomorrow, as Janet Yellen hosts her first FOMC press conference as Fed chairman (unless a big Chinese company collapses overnight.)
Bargain hunting is emerging after the profit-taking of the last two days, as investors who fled to gold over worries about Ukraine move back into equities. Expect some volatility tomorrow when the FOMC releases its report, then we can see if the precious metals can reconfirm the uptrend it's been riding all year so far.