Weak economic numbers out of the EU show that the hoped-for recovery on the Continent hasn't happened yet, and has reinforced expectations that the European Central Bank will loosen monetary policy or even cut rates this week. A recent report predicts that composite Eurozone unemployment will remain near record highs through 2015, hampered by the broken economies in Greece, Spain, and Italy. Austerity measures are also taking their toll on economic growth.
This has sent the euro down again versus the dollar, sterling, and yen, which has boosted the dollar. The greenback got another little boost from this morning's ISM service sector PMI, which clocked in a full point above September to 55.4. Wall St. had opened moderately lower before the report, as analysts had expected a 0.4 point drop in the PMI report.
The report also sparked a sell-off in gold, which had seen a rally shortly before the U.S. open from overnight softness in Asia. Silver took a much smaller hit on the news, and the PGMs basically shrugged it off with palladium actually gaining. Traders are on tenterhooks over the possibility of the Fed tapering its $85 billion a month in bond purchases, which will raise Treasury yields and pull excess liquidity from the stock market. Moderately rising bond yields is bearish for gold, to a certain point. Gold will gain strength if bond yields increase to the point of sparking inflation fears.
In Asia, all eyes and ears are on China, where the Communist Party meeting to establish national policy gets underway later this week. As a preview of the dance card, a speech by Premier Li Keqiang was released by state-run media, where the leader warns against loose money policies as the nation combats inflation (especially in real estate.) He stated that a goal of at least 7.2% growth in GDP was the government's target, to create 10 million jobs a year while transitioning the economy from a purely export-driven model to a more balanced situation.