At any rate, as impacts the noble metals complex, there was some mixed news on the automotive front, as German carmakers announced having to add extra shifts in order to keep up with demand for Audis and BMWs, while Chinese car sales plummeted in February. The latter came as no surprise, as various subsidies and incentives were withdrawn in that market from buyers. Will N. America and Europe pick up the slack? Stay tuned.
On the economic statistics front this morning, we had the usual mixed bag of hot and not-so-hot news from various quarters. China announced a hefty drop in exports in February (everyone must have been out partying for the New Year?) and a swing into an unexpected trade deficit situation (the first one since March last year). As well, the country reaffirmed an alarming inflation rate of 5.1% for the year that ended in November. The operative word in China is “tighter, tighter” as the goal is to drag inflation down nearer to the 4% level, and do so as soon as possible.
Over in the USA, the country’s trade deficit expanded by 15.1% in January, according to the Commerce Department. The gap grew wider despite a record level of US exports that showed a 2.7% gain on the month. Something else that grew in the US was the number of claimants for joblessness. The latest reporting period revealed a jump of 26,000 filings for unemployment benefits to a seasonally adjusted figure of 397,000. The more significant four-week average in such claims remains near the 392,000 level which represents a three-year low, and that is good news, indeed.
However, the added jobless claims figure and the trade deficit growth sapped all bullish energy from the Dow this morning. The market fell nearly 200 points on the day after the second anniversary of the best bull market rally (87%!) in equities since 1955. So, for a change (not) everything was falling in concert on Thursday. Once again, not the normal order of the investment universe, but, hey, these are times of “unusual uncertainty” and trying to apply old formulae to them might be hazardous to one’s financial health.
On the other hand, there was something that fell, and fell hard in the States; the number of home foreclosures that is. A staggering (largest on record) 27% year-on-year collapse in the number of foreclosure notices issued to American homeowners in the month of February indicates that the “national nightmare” (as CNN Money puts it) could be drawing to a close here. As mentioned yesterday, employment and housing remain at the front-and-center of US Fed and Obama administration preoccupations.
Perhaps this is why the Fed is “gently” trying to “inform” the investing crowd that it intends to exit stage left from its extraordinarily accommodative stance in coming months. Much to the chagrin of commodity speculators (and, now, also to that of PIMCO, it turns out), the “easy money” party could come to a complete end by the time July 1st rolls around. QE1 ended in March one year ago, and the time is coming to place QE2 into “dry-dock” as well.
Recently, the Fed revealed that it is expanding the number of counterparties for the types of transactions that will help facilitate the drainage of the hot tub of liquidity in which the aforementioned speculators have been having a Marin County-style wild blast for several years now. The man (Mr. B.B.) has a plan. That type of “plan” is most likely at the core of PIMCO’s Bill Gross decision to exit from any and all exposure to US securities.
Rather than being…”grossed out” by the US deficits and US instruments, he is most likely a pragmatist who became convinced that the Federal Reserve is about to become less “generous” in its monetary policy; a prospect that comes complete with rising interest rates. Under such a scenario, there might be money to be made elsewhere (at least in PIMCO’s thinking). Yesterday at any rate, Treasuries extended their gains after the sale of $21 billion of reopened 10-year notes brought a high yield that was below market expectations, indicating aggressive bidding for the securities.
Until tomorrow, watch that volatility and keep all arms and legs inside the moving roller-coaster cart.
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America