PM Daily Market Commentary - 12/23/2014

davefairtex
By davefairtex on Wed, Dec 24, 2014 - 1:43am

Gold rose +0.20 to 1177.20 on moderately light volume, while silver rose +0.10 to 15.79 on light volume.  Gold had a relatively modest trading range, while silver had a bit more excitement around the time of the positive US 3Q GDP revision at 0830 EST, selling off a bit in advance, and then spiking higher at the time of release.

The buck rose sharply, climbing +0.42 to 90.36, an 8-year cycle high.  Most of the gains came after the 3Q GDP revision at 0830.  The currency market continues to respond positively to every bit of happy news coming from the US economy, resulting in the other major currencies continuing to sell off vs the buck.  The Euro is at 121.74 and seems destined to test 120.  Each rise in the USD vs the emerging market nations makes life more difficult for their dollar-denominated debtors, whose actions to unwind their debt tends to feed the uptrend in the buck.  It will lead to slowing economies, credit downgrades, possible bankruptcies, and bank solvency issues.

The Ruble has stopped its upward move; today, the Ruble closed at 54.60, down 5 points from its open price this week, and way down from its high of 78.  While the "panic phase" for the Ruble may be over for now, the impact of the still-large move will be rippling through Russian banks and companies for months to come.

Mining shares sold off today, with GDX down -0.92% on moderate volume; GDXJ dropped -1.75% on moderately heavy volume.  Mining shares rallied in the morning, but then sold off in the afternoon.  Apart from two days last week, there just is not much enthusiasm for the mining shares from traders this month.

SPX did not react much at all to the big GDP revision; it rose only +3.63 to a new all time closing high of 2082.17, printing a small inverted hammer candle.  VIX dropped -0.45 to 14.80.  The non-reaction of SPX to a very positive GDP revision may be a warning sign.  I get the sense SPX is getting tired at this point, and the large move in the buck today didn't result in much if any money going into equities.

TLT sold off hard today, dropping -1.98%.  It didn't like the GDP revision; it sold off in anticipation of the report before 0830, and once the report hit, the selling accelerated and continued through to the close.  Its much-junkier cousin (JNK) rose +0.31%, likely on the back of a rise in oil prices.

The overall commodity index ($CRB) rose +0.85%, but remains in a downtrend, below all three of its moving averages.  WTIC rose +1.46 to close at 56.84, not quite recovering the losses from yesterday.  It too remains in a downtrend.  Oil has been chopping sideways since the low was marked six days ago; it looks like a real war between shorts and longs trying to sort out where things go from here.  There seems to be support at 55, but right now there is not much enthusiasm to chase prices higher.  A close above 58 would change that picture.

The impact of the rest of the world on commodity prices can easily be seen in their reaction today to the US 3Q GDP revision.  Normally, great economic news would tend to move commodities sharply higher - unless of course the US was the only country doing well.  Since that seems to be the case, that explains today's outcome.

So what's the story with today's massive GDP revision?  Consumer Metrics has their analysis.  I'll quote a few interesting factoids with my spin on them, but the whole article is worth reading: http://www.consumerindexes.com/

  • Headline number: +4.96% "real" GDP
  • Uses an unrealistically low inflation number of +1.39%; CPI-U comes in at -0.10%, mostly due to dramatically lower energy prices; using the deflating CPI-U, real GDP would be +6.52%.
  • Households largely didn't receive any benefit at all.
  • Big chunk of consumer spending increase was in healthcare, which mostly was paid for by reduced consumer savings.
  • big investment categories for industry: software, oil wells, and transportation.

It is not entirely a shale story, but I can see the footprints of shale in many areas in this GDP report.  When this largely unwinds in 2015, a bunch of that growth will be reversed.  I could see an almost-flat GDP print in a quarter or two, even if nothing else changes besides shale.  I wonder what that will do to the dollar?

"The US current economic miracle: its almost all about shale."

How's that for a headline?

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