Consumer confidence in the U.S. unexpectedly fell in January to a one-year low, thus tempering the recent rally we have seen in the US equity markets. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 71.3, the lowest since December 2011. However, from a corporate earnings standpoint, things are looking good. Both General Electric and Morgan Stanley’s earnings beat analyst estimates, as overall economic data from the U.S. seems to be on a positive track.
The S&P 500 is 5.4% below its all-time high of 1,565.15 set in October 2007. As the market potentially gets closer to this level, it will likely make the news more and more. This alone can potentially bring more buyers into the market that want to hop on the rally train. We believe the next few U.S. payroll and unemployment reports will have a huge impact on the stock and bond markets. Bernanke and co. have emphasized the unemployment rate as a key metric for the Fed, thus we expect the market to watch this number very closely.
Most precious metals, especially platinum, are down today. Platinum futures, after a very impressive run from $1,510 to $1,700, are down $20 today, or 1.21%. Gold futures, after a mild rally over the past few sessions, are down $4 today. Our upper range level of $1,690 was briefly breached today, but gold came back down. If the U.S. dollar starts to pick up steam above the key 80 level, we believe gold will head lower towards the $1,630-$1,640 level again.
Crude oil is markedly quiet today, even with the gas plant takeover in Algeria. We wish the best for all involved in that situation. We believe that there is indeed a potential supply glut in crude oil, and even with an improving global economy which might require more and more energy than a recessionary economy, we still believe that crude oil is simply “climbing a wall of worry” now and that if the Algeria plant takeover concludes peacefully and production concerns abate, crude might head lower quickly to the low $90s.
We focus more on the U.S. Dollar index today. Since last September, the U.S. Dollar Index has been in a trading range between 79 and 81. It has tried to break and hold below 79 three times in that period, and has not been successful. We believe the index will experience a rally to the 81.50 level, and possibly beyond that. If the US economic numbers continue to surprise to the upside and bond rates start to rise, we might see a sharp rally in USD and a corresponding sell-off in precious metals, especially if market talk picks up about QE3 ending this year and even a potential Fed rate hike before 2015.
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