Wall St, which had yesterday seen its worst day in four weeks, saw losses accelerate out of the gate this morning, while the 10-year T-note saw its yield shoot to a new high for the year. Gold dropped to a 2.5-month low as the dollar spiked.
European stocks and bonds are getting pulled even lower, as Greece intentionally missed today's €300 million payment to the IMF. The socialist government invoked a clause that lets it delay all four payments due in June (totaling €1.6 billion) until the end of the month.
Yesterday in the Markets
It was another nasty day for bonds and stocks in both Europe and the U.S. on Thursday. The Dow was down .9%, the S&P 500 down .84%, and the Nasdaq down .79%. Stocks opened lower, attempted a morning rally that fell short, and then fell for the rest of the day.
The euro saw its two-day rally, which had lifted the common currency by over 3%, come to an end on Thursday, as it consolidated back below 1.13. The Dollar hit a two-week low in early morning trading, to end flat.
Oil saw heavy losses a day before the OPEC policy meeting, with WTI down 2.7% to just below $58 a barrel, and Brent crude down 2.6% to just above $62. Gold broke through support at $1,186, falling $8.60 to finish at $11.76.40
Factors Affecting Gold Today
As we noted yesterday, the non-farm payrolls report for May had the potential for moving the markets in both Europe and the U.S., and boy, did it live up to its potential. The U.S. economy added a whopping 280,000 new jobs last month, against expectations of 226,000. This is the largest jump in new jobs in five months. The unemployment rate inched up to 5.5% from 5.4% in April, as more unemployed Americans who had given up hope of finding a job re-entered the workplace. This is reflected by the labor participation rate bumping up to 62.9% (still near multi-decade lows) and U6 unemployment rate holding steady at 10.8%. The "official" U3 unemployment rate thinks you don't exist if you aren't out actively pounding the pavement, looking for a job. Hourly wages rose 0.3% (8¢ an hour,) the best one-month gain in almost two years.
The reason the payrolls report threw markets into a panic is that investors now fear a September interest rate hike by the Fed. The bond sell-off resumed immediately, after finally getting a breather yesterday afternoon, while stocks tanked. However, equities soon reached a level where both human and robot buyers decided it had just gotten into ludicrous territory since Monday, and the buying began, getting the market back into positive territory.
No such luck for bonds, as investors resumed ditching their near-zero yield bonds for whatever they could get. "Bond King" Bill Gross, who had only yesterday said that the bond rout was not a bear market, reversed his call this morning on Bloomberg Radio, declaring that we are in a bear market for bonds after all. Some analysts believe that since the U.S. is on a path towards monetary normalization while the other major central banks are still printing money, the volatile German 10-year bund better reflects global conditions, and has taken the 10-year Treasury's place as a bellwether for the world economy. Yields are hitting new 2015 highs this morning across the bond sector.
Since commodities are denominated in dollars in international trade, a surging greenback is bad news for gold. Spot gold bottomed out this morning at $1,161.40 before short-covering and bargain hunting stepped in. Oil, which had seen a 5% drop in the last two days, saw a brief rally this morning simply because OPEC didn't raise production at today's meeting, as some had feared. This didn't last long, as the dollar's rocket ship ride soon exerted pressure on crude oil futures.
The ruling Syriza party in Greece is taking bailout brinksmanship to a new level today, deliberating not paying a €300 million IMF loan payment due today. Instead, they have opted to roll all four June payments into a lump sum payment due at the end of the month. This ploy, while legal under the IMF bailout terms, has only been used once before, when Zambia invoked the same clause in the 1980s. One Greek official maintained that the government had the money to make today's payment, but did not do so in order to add more pressure to its creditors.
To add more implicit threats to the high stakes pot, socialist prime minister Alexi Tsipras made a phone call to Russian president Vladimir Putin today, ostensibly to talk about the construction of a natural gas pipeline from Russia to Europe that would bypass Ukraine. The two leaders agreed that Tsipras would visit Moscow in two weeks. This could be simply more showmanship as Greece plays the long con against its creditors, or it could be a legitimate plan to line up options in case of a Greek default. Greece's lavish pension plan, where some people can retire permanently at age 50 with 100% of their salary, remains a huge sticking point between the bankrupt country, and creditor nations whose citizens see their tax dollars funding what they perceive to be Greek indolence.
While the ruling socialists has said that this posh setup is not up for negotiation, they are seeing support of centrist Greeks drain away. A poll released today showed some interesting numbers:
- 50% want a deal with creditors, even if it means Syriza abandons some of its election promises.
- 47% disagree with the way the government has been negotiating with creditors
- 74% want to remain in the euro, and not default
- 37% support snap elections to get a compromise deal through the Greek parliament
As the clock ticks down, it may be time to cue up Martha Reeves and the Vandellas for the socialist government in Greece: "No where to run to, baby, no where to hide."
Monday is a light day as far as economic news, with Germany announcing industrial production and merchandise trade.
If the Fed doesn't go into "damage control mode" today in an attempt to calm the markets, expect it for sure on Monday.
Sunday has a meeting in Bavaria of the G7 leading industrialized nations, where, much to Chancellor Merkel's chagrin, the talk will inevitably center on Greece, yet again. More uncertainty in this area will surely weigh on bonds and stocks again at Monday's opening bell.