It was bond sale time again in Europe this morning, but an offering by Italy fell short of the reception that Spain’s auction met with on Thursday. Thus, some of the enthusiasm on display yesterday dissipated a bit this morning and the dollar was seen fast approaching the 81.50 level on the trade-weighted index while other assets (gold included) headed lower amid profit-taking. The euro fell to the day’s lows after the auction.
A potential six-month delay in the EU’s embargoing of Iranian crude oil made for quite a reversal in that commodity’s price yesterday and black gold was still trading near $99 per barrel this morning. Oil is on course to now mark its largest weekly fall in one month (near 2.3%) despite tensions with Iran still on the radar and despite Nigeria’s five day-old general strike supporting the opposite trend.
Some investor nerves were also rattled by the “suggestion” by two German lawmakers that Greece’s departure from the euro might not be a cataclysmic event at this juncture. The ECB left rates untouched yesterday but investors were focusing on the fact that its head, Mr. Draghi, basically said that the three-year loan scheme (of near half a trillion euros) is what has prevented a credit “event” in Europe.
He also noted that “substantial downside risk” to growth remains manifest in the region. Most market observers are all too aware that it is now Europe’s turn to deleverage as it carried a higher total public and private debt load (at 444% of regional GDP) than the US when it began a similar process. De-levering often leads to deflation raising its ugly head (complete with the prospects of social upheaval).
This morning’s window-rattling news once again emanated from Europe: It was related to fresh speculation that a ratings downgrade (target(s): unidentified) is in the works at one or another rating agency. The news was enough to send the greenback soaring at the 9:30 hour in New York (it rose by a full 1.0% to 81.58 on the index). So much for the “risk-on” trade that appeared to flourish for a few days prior to today…
The downgrade rumor also sent the Dow down 90 points right at the opening bell. In domestic news, the US trade deficit widened more than it was anticipated in November as exports fell and as imports of autos and oil climbed. On a positive note, the US hiring deep-freeze appears to be finally breaking up as economists now estimate that more new American jobs will be created in 2012 than at any time since 2006. Along with more jobs being created, US paychecks are also expected to become slightly plumper (emphasis on: slightly).
Spot precious metals dealings opened the week’s final session with lower prices across the boards and then went lower still. Gold fell $18 and was quoted just above the $1,630 bid level per ounce while silver dropped 70 cents to touch $29.55 per ounce. Platinum and palladium declined between 1.4 and 1.9 percent with the former losing $22 at $1,480 and the latter slipping $11 to $625 the troy ounce. Here’s a headline you did not expect to run across very often, if at all: “India Dumping Gold and Moving to Bonds.”
That is not a typo; locals are selling their bullion and placing it into sovereign debt instruments (!) Part of the explanation may be found in India’s (finally) easing inflation levels but the remainder can mainly be attributed to gold prices that remain unpalatable to the country’s would-be investors. The BBA (Bombay Bullion Association) warns that India’s appetite for gold could experience a 25-30 percent contraction this year if prices remain where they are or have been recently.