MACRO: A new day, a new record for US stocks, amid continued optimism about the US economy
and another round of M&A activity. The S&P500 reached its eleventh winning session in the past
thirteen and its seventh record close in the past eight trading days. The S&P finished 1.83 points
higher (+0.09%), the Dow Jones edged 18.82 points higher (+0.11%), whilst the Nasdaq was the
best performing bourse, gaining 14.84 points (+0.34%). There were wins for industrials (+0.6%),
financials (+0.4%) and tech stocks (+0.3%), whilst utilities (-0.7%), healthcare (-0.5%), materials (-
0.3%) and staples (-0.1%) all finished the day in the red. With a lack of economic data, investors
appeared to focus on a number of mergers and acquisitions, whilst remaining upbeat and
encouraged by last weeks strong data releases. Accommodative central bank policies, improving
data and bullish views on corporate earnings around the globe have helped push stocks higher in
recent weeks/months, with a number of major index's touching record highs. The European markets
were also higher on Monday, with the smaller markets such as Spain, Italy and Portugal leading the
way. The FTSEurofirst 300 index rose by 0.4%, while both the German Dax and UK FTSE finished
0.2% higher. The Spanish market tacked on 0.9%, Italy closed 0.8% higher whilst Portugal's main
bourse closed 0.6% firmer.
US long term Treasury prices pulled back overnight as investors continue to switch from safe haven
assets such as gold and bonds into equities. US two year yields were up by 2 points to 0.427%,
while US 10 year yields rose by 2 points to 2.611%. The VIX 'complacency' gauge rose by 2.6% to
11.01 whilst the dollar index rose by 0.3% to 80.633. The top performer in the G10 was the CAD,
rising by 0.2% followed by the Aussie, which was up by a similar margin. The euro slid from highs of
around 1.3665 at the close of Asia yesterday to finish the day at 1.3580. The USD/JPY range
traded between 102.37-102.59, whilst the worst performers were the scandis. The SEK was down
0.9% on the day and the NOK finished 0.5% lower.
Not much in the way of US economic data. The employment trends index increased from 117.32 to
118.58 in May, which is following on from the non farm payrolls number on Friday showing a
217,000 rise in employment, with unemployment stable around 6.3%.
There was a little Fed chatter overnight. Eric Rosengren was on the wires stating that the Fed may
need to implement a second tapering of its bond buying program. He said "As the economy moved
closer to the Federal Reserve's 2% inflation target and full employment, there could be a gradual
reduction in the reinvestment policy-which would allow for a predictable reduction in the size of the
balance sheet...A reduction in the balance sheet, when that becomes appropriate, could be
implemented as a basically seamless continuation of the tapering program used for reductions in
the purchase program...and the Fed...could decide to reinvest all but a given percentage of
securities on the balance sheet as they reach maturity, and increase that percentage at each
subsequent meeting, assuming conditions allow." Rosengren once again offered his strong support
for aggressive action to support the economy. "I personally do not expect that it will be appropriate
to raise short-term rates until the U.S. economy is within one year of both achieving full employment
and returning to within a narrow band around 2% inflation." James Bullard was also on the wires,
saying that if the economy performs as he expects for the remainder of the year, it is likely rates will
rise sooner than expected. He said “If you get 3% growth for the rest of this year, if you get
unemployment coming down below 6%, if you continue to have jobs growth at 200,000, if you
continue to see inflation moving back up toward target, I think if we get to the fall of the year and all
of those things are transpiring as I’m suggesting they will, that will change the conversation about
monetary policy, and there will be more sentiment toward an earlier rate hike,”
PRECIOUS METALS: Very little to report overnight in the precious space, as gold experienced its
lowest trading volumes on comex since December 2013! Turnover was less than 52,000 lots, as all
attention seems to be squarely on the record breaking equity indices.
Gold pushed to the days highs in European trade, as the market ground its way up to 1257, but the
marginal gains weren't sustainable and New York were happy to sell into the rally, pushing gold
back down towards 1253, but as mentioned, volumes and interest were on the low side. The high of
1257 has now become a mini triple top on the hourly charts, and momentum is certainly lacking as
any rally seems to be faded and looked upon as a selling opportunity. Vols continue to drift lower as
one month is currently around 11.1 versus 11.75 yesterday, and short dated downside options
seem to be gaining the markets attention. Silver wasn't much better, trading in a minute 14 cent
range.
Further reports overnight in regard to the ongoing dispute between the South African platinum
producers and unions continue to influence the PGM markets.
Despite the headlines, platinum traded within a $10 range between 1445-55, closing at 1451.
Also making news were reports that Deutsche Bank has begun operating a precious metals vault in
London, with a capacity of 1,500 tonnes, significantly larger than its Singapore vault which can hold
200 tonne.
ASIA TODAY: Precious metals in Asia were quiet again today, following on from the minuscule
$4.50 range overnight. Globex opened to some light supply, around 1252. There were small stops
triggered on the exchange on the break of the overnight low, pushing gold down to the lows of the
day, just above 1250. A couple of sweeps of selling in August were not enough for to break 1250,
and resting bids on the futures prevented the market falling any further. After touching 1250.10
GCQ4 just after the Globex open the market settled back where it opened at 1252 awaiting the
Shanghai Gold Exchange. The premium on the SGE was around $2 which provided a small bid to
gold. The yellow metal edged a couple of dollars higher, reaching 1254 not long after the fix which
is where the market remained for the rest of the day. The SGE premium has been as high as $3 in
the last few trading sessions, but for the time being seems capped around the $2.50 level, which is
likely due to importers eager to lock in any kind of premium as there have been so few opportunities
in recent months.
