Commentary: Gold advances as central banks stay the course on interest rates
The biggest reaction by far to efforts from Fed Chair Yellen yesterday and Bank of England Governor Carney today to convince the street that even with their economies improving interest rate increases aren’t on the table until next year at least has been in the gold market. The yellow metal and benchmark for hard assets has been steadily climbing against both USD and EUR as it becomes increasingly clear that the process of taking the pedal off the metal and going back to normal is going to take some time and real tightening looks a long way away for the biggest central banks.
Emerging market concerns may also be playing a role but this is fading as the crisis appears increasingly contained to select countries with both India and South Africa reporting better than expected data today.
In its inflation report, the Bank of England indicated today that it intends to keep its benchmark interest rate at 0.5% long after the 7.0% unemployment threshold is breached as it tries to close the output gap in its economy. It based future forecasts on an initial interest rate hike in April of 2015. The Bank raised its 2014 GDP growth projection to 3.4% from 2.8% and indicated it expects 0.9% growth in Q1. The bank expects inflation to fall below its 2.0% target by Q2 of 2015. Governor Carney also indicates that when rates do start to rise, increases will be gradual. Interestingly, GBP has continued to climb suggesting that the street still sees the BoE as being relatively more hawkish than the Fed.
Asia Pacific indices and copper rallied overnight on the back of a stronger than expected Chinese trade balance with both exports and imports rising, a positive sign for the resource sector. European indices have been trading slightly higher while US indices appear to be heading for a flat open suggesting yesterday’s upward momentum may be fading and markets remain in consolidation mode overall.
Deere $1.81 vs street $1.53
Fossil $2.68 vs street $2.43, guides EPS to $1.10-$1.18 short of street $1.29
Western Union $0.31 vs street $0.33
Intuit Profit warning! Cuts EPS guidance to $0.01-$0.02 from $0.25-$0.27, lowers sales guidance to $775-780M from $890-910M
Husky Energy $0.42 vs street $0.38
Talisman Energy ($0.11) vs street $0.00
Air Canada $0.01 vs street $0.11
Rogers Comm $0.69 vs street $0.74
Economic reports released overnight and this morning include:
China trade balance $31.8B vs street $23.4B vs previous $25.6B
China exports 10.6% vs street 0.1%
China imports 10.0% vs street 4.0%
Australia consumer confidence 100.2 vs street 103.3
India industrial production (0.6%) vs street (1.2%)
India consumer prices 8.7% vs street 9.2% and previous 9.8%
South Africa retail sales 3.5% vs street 2.8%
Eurozone industrial production 0.5% vs street 1.8%
Economic reports due later today include:
10:30 am EST US crude oil inventories street 2.6 mmbbls
10:30 am EST US gasoline inventories street (2.1 mbbls)