PM Daily Market Commentary – 9/15/2014
Gold closed up +2.30 to 1233.80 on moderate volume, while silver was up +0.05 to 18.67 also on moderate volume. Gold made a new low hitting 1226 early in asia, and then rallied back to close green. Silver traded in a tight range, and closed at the top of its range.
For silver, if we get a close above 18.75 that could start to make the silver shorts a bit nervous – there certainly are a lot of them, and short-covering will provide the fuel for the rebound when it happens. Silver is oversold, and due for a bounce.
The dollar rallied once again, although it ended up well off its highs. At one point the buck looked like it would stage another breakout, but it ended up closing only +0.13 at 84.37. The dollar still looks strong; given current correlations, a top in the buck will likely come at the same time as the low in both commodities and PM.
Tomorrow we have another FOMC meeting starting; it will last for two days, and there will be a release of the minutes on Wednesday at 1400 and a Chair press conference at 1430. The minutes are closely parsed by the market for any changes, and it will most likely result in some serious volatility during that time. Will the Fed continue tapering? I think so. Will they talk about raising rates? An interesting question. I'm seeing a number of timeseries starting to show some weakness in the economy, and I'm sure the Fed sees these as well. If the Fed softens the rate talk, it will probably weaken the buck. Let's hope so anyway. What's more, I don't think the Fed particularly wants a strong dollar. The dollar is ridiculously overbought right now…it is an over-stretched spring, ready to snap back, and a lot of that move happened since the last Fed meeting.
Another factor affecting the buck will be the Scottish Independence vote, coming Thursday 9/18. If Scotland votes Yes, the pound will probably sell off hard, which will cause the buck to rise. I don't think the market really believes it is possible that a 300-year union will be dissolved by a vote, so if it does happen, the reaction will probably be quite violent. Conversely if it doesn't happen, the pound will probably rally, which would be dollar-negative.
So – the PM-positive scenario is: FOMC turns more dovish, trying to talk the buck down. Buck falls on Wednesday. Then Scotland votes No. Dollar sells off hard, that overstretched-spring snaps back hard, and PM rallies along with the rest of the commodity index.
GDX closed up +0.13% on moderately light volume, while GDXJ was up +2.80% on heavy volume. The divergent behavior between GDX and GDXJ is curious to me, and bullish. GDXJ looks to be quite close to putting in a bullish reversal in a breakout of its recent consolidation and its up-day volume looks quite constructive, while GDX is still looking for support. Market is saying: "we really like junior miners" and historically that has generally been bullish for PM.
SPX was off -1 to 1984; it has been fading a bit over the past couple of weeks, but still remains above its 50 day MA. VIX rose +0.81 – a pretty big move – and is now at 14.12. Perhaps traders are buying downside protection in advance of the FOMC Meeting?
Long term treasuries (TLT) were up modestly, closing +0.15%. Bonds appear to be looking for support. Then again, trading usually tapers off ahead of the FOMC meeting.
Commodities managed to avoid dropping today (they have dropped 9 of the last 10 days), closing flat. WTIC rallied +0.64 closing at 92.97 after being down as low as 90.60 early in asia, while Brent was up +0.77 to 97.88. Oil is chopping sideways; WTIC seems to have support in the 91-92 range – we'll see if it holds up this time.
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I trace it back to the time of this article: "Ukraine Ratifies Deal, offers special status to rebels"
Shortly after the publication time (11:28 EDT) the dollar started dropping, first slowly, and then more quickly. In response, silver and gold both broke out, as did GDXJ and the SPX.
Oil was already doing well, and this just pushed it higher.
If it holds through to the close (and that's a BIG if), we may have at least a temporary bottom in PM today, and the top in the buck.
Of course, there is always the FOMC meeting tomorrow…and Scottish Independence, so no guarantees…
China announced another round of stimulus that hit the wires at 11:29 a.m. today.
The second notable headline crossed at around 11:29 a.m. ET from China.
"China's central bank starts 500 billion yuan standing lending-facility to nation's 5 biggest banks," Bloomberg's Bonnie Cao reported.
All of this follows a slew of disappointing data out of China that showed growth in the world's second largest economy was slowing sharply.
Here's a look at copper, which is now up by 1.8%.
Didn't see the China headline – I like your read better. Copper really was pretty happy…and that always says "China" to me…
Here's a good example of how deflation from the debt bubble pop will hammer the EU until the european central planners (or politicians) give up and really sign up for reflation. That, or nations will eventually leave the eurozone, and default & reflate on their own.
Italy is in a total debt-deflation trap. Their debt/GDP is increasing 5% per year, and will be at 145% debt/GDP next year. As the commenter below says, "who knows the maximum number that the market will tolerate?"
Or indeed, the citizens. Will they sign up for 10 years of continuous recession? And all the while, the steadily increasing debt slowly crowds out all other government spending?
I wonder how long politicians can get away with promising growth, and then not having it appear…
“This is catastrophic for the finances of the country. We’re heading for a debt ratio of 145pc next year,” said Antonio Guglielmi, global strategist for Mediobanca.
“Who knows the maximum number that the market will tolerate? The number is already scary, but for the time being Draghi’s poker game is proving successful, and there is now the smell of QE keep the game going for a bit longer.”
“It is going to take a nuclear bomb to turn this around. If Draghi ends up doing almost nothing – and there is a lot of scepticism about the ECB's plans – Italy is dead,” he said.
I prefer growth expressed in it's doubling time.
Their debt/GDP is increasing 5% per year
That is 70/5= 14 years. Italy's debt to GDP will be 290% in 14 years. Is it a fair analogy to compare Italy's debt to me borrowing 300% of my annual salary and spending it on consumables?
They must be spending some proportion of that debt on income producing assets. I wonder what the proportion is? Not war toys, one hopes. No-they would be consumables. I am guessing that Italy's expenses are similar to Australia's and most of their expenses are social security.
(The spelling checker says that expence is spelt expense. I prefer my spelling ex-pence. As in "I used to have a penny and now I don't", ie ex-pence.)