PM Daily Market Commentary - 6/4/2014

davefairtex
By davefairtex on Wed, Jun 4, 2014 - 8:49pm

Gold closed down -1.30 to 1243.70 on light volume; silver was down -0.01 also on light volume.  Both metals traded mostly sideways although gold briefly spiked higher at 0815 EDT - the same time a lower-than-expected ADP payroll report was released.  However, gold could not hold its gains, and sold off into the close.

The buck climbed +0.12 to close at 80.71, a new cycle high - but just barely.  Going into the ECB meeting on Thursday, the buck seems well bid.

GDX closed down -0.40% on moderate volume - GDXJ was off -0.42% on light volume.  Trading was mostly sideways, with selling into the close, giving a slight bearish tone to the day.  Today was the last time traders could get in or out of their miner positions prior to the ECB rate decision released at 0745 EDT Thursday.

My sense is, there's a great deal of uncertainty - Draghi talks a good printing game, but so far, there has been no wood behind the "printing" arrow, to mix a metaphor.

SPX closed up +4 today to 1928, another new all time closing high.  However, the VIX rose to 12.08, likely traders buying downside insurance for the upcoming ECB rate decision.  The VIX rising along with SPX is relatively unusual.

All in all, it was a very quiet day.  Calm before the storm?

Times to watch tomorrow:

0700 EDT: Bank of England rate decision

0745 EDT: ECB rate decision

0830 EDT: ECB policy statement released, Dragi press conference

Once again, we await the whim of our central planners.  The old Soviet Politburo members must be laughing at us from beyond the grave.  Except for Gorbachev, who is still with us, and who is probably laughing at us right now!

4 Comments

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1889
From ZIRP to NIRP: what is this?

Dave (or any of you financially oriented types),

What is happening with the ECB move this morning from Zero Interest Rates to Slightly Negative (-0.10%) Interest Rates.  What is the rationale for this--the mechanism by which it is anticipated to support the EU financially.

Thanks in advance

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5729
Working on it...
sand_puppy wrote:

Dave (or any of you financially oriented types),

What is happening with the ECB move this morning from Zero Interest Rates to Slightly Negative (-0.10%) Interest Rates.  What is the rationale for this--the mechanism by which it is anticipated to support the EU financially.

Thanks in advance

It's a pretty big deal.  So I'm writing this up ... 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
negative rates, & ECB press conference chat

sand_puppy-

Well not many places have done that before - certainly not the size of the eurozone - but if I were a bank I'd probably move my money out of a place that charged me money to take my deposit.

It's another way of getting banks to chase yield - theoretically get them to loan money.

If I were a guessing man, I'd guess this will immediately depress rates on very short term treasury bonds in safe locales - i.e. risk-substitutes for a deposit in the ECB.  But I'm not sure it will make them more likely to loan money to some high risk homeowner.

[EDIT: They also announced a new LTRO for $400 billion - theoretically only for loans to small businesses, not for the borrowers to turn around and buy sovereign bonds.  ECB rate for the LTRO was quite low; banks borrow at 0.25%, and lend to the small companies at...whatever they can get.  Just imagine if the companies themselves could borrow at 0.25% and cut out the middleman.  What purpose do the banks serve again?]

It might be worth understanding how much is on deposit with ECB that will end up looking for a new home.

Here's a fun blow-by-blow of Draghi's press conference.  Note that it was at exactly 0847 when gold started its $12 Draghi Spike.  Not sure there was an actual event that caused it, but you can look at the chat and see for yourself.

http://www.theguardian.com/business/blog/2014/jun/05/european-central-bank-ecb-markets-rate-cuts-stimulus-business-live

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Gold spike...

Let's see.. it's been said that negative real rates (where inflation is higher than the interest rate of return on savings) is good for Gold.  What then of negative nominal rates?  Just wow.  If you are not taking your money out of the bank and buying real assets now...after seeing the ECB announcement, you are just hopelessly asleep. 

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