Gold and silver started gaining in Europe overnight on emerging market worries, and has continued the climb in early New York trading. The Dow opened nearly 200 points in the red, as traders fret over what might happen over the weekend in Turkey, Thailand, Hungary, and Ukraine.
Chinese markets started their week-long Lunar New Year holiday, and will not re-open until next Friday. This leaves commodities without their largest customer, though gold demand is likely sated temporarily after strong buying ahead of the Chinese New Year.
Consumers borrowed more to spend more in December, as consumer spending recorded a larger than expected 0.4% gain. Personal incomes remained flat during the same period, while disposable income dropped to the lowest point since January 2013. Disposable income in the U.S. dropped 2.7% for all of 2013, the largest drop since 1974.
European markets and the common currency were unable to fight back the effect of plummeting markets in emerging nations in Asia and Latin America. News that EU composite inflation dropped to 0.7% from last month's 0.8% has rekindled deflation fears there.
The contagion in emerging markets, which have collectively seen an estimated $9 billion pulled out just in the last week, may be spreading into the EU. Hungary's stock market and currency is under major pressure, as the government there cancelled a bond sale yesterday, and now Poland is delaying the release of its monthly debt supply plan due to "market turbulence."
The dollar, which was flat in Europe, is gaining on the U.S. consumer spending report, and safe haven demand as Wall St trades solidly in the red. The yen likewise is seeing support from safe haven demand.
The IMF is warning central banks that the rout in several nations' financial markets could turn into a global liquidity crisis, and to be on guard for such an event. It seems the entire world became addicted to the Fed's easy money policy, and foreign markets are now starting to suffer withdrawals. Nations that attacked the Fed over the "hot money" that flowed into their economies are now attacking the Fed for reducing the flow of that money. The chief of India's central bank has complained that the Fed should be more mindful of what its tapering is doing to other countries.
The Fed, however, is not a global central bank, and its mandate is to watch over the U.S. economy and employment outlook. It does not have the authority to change policy because of conditions in foreign nations.