Price action in the commodities space has been on the strange side for some time, but something gave on Friday and we saw a virtual collapse in gold, with other commodities prices not too far behind.
Check out the price action – gold was down $63 for the session and now sits at $1500, which is the lowest price since July 2011. Silver was down nearly 5 per cent with copper and crude off almost 2.5 per cent each. It’s remarkable.
Now, it’s true to say that markets were hit with a whole bunch of bad news on Friday, but the thing is, equity markets took it in their stride. So US data was soft or disappointing or what have you on Friday – especially retail sales, which fell 0.4 per cent in March, softer than the expectation of 0 per cent. Stocks did weaken on that – it does back the case for yet another summer slowdown (aka double-dip recession in previous years), and the S&P was off 0.8 per cent at the low. I’ve mentioned before though that buyers always seem to come in when the market dips and it was no different this time, even with said data.
By the close, the S&P had regained almost 10 points to be 0.3 per cent lower for the session. The Dow was flat and the Nasdaq fell 0.2 per cent.
For the week, US stocks are up over 2 per cent and yet commodities still haven't really done anything and gold crashed. For the week, it's down $75, bringing it down $100 for the month so far.
The turn in sentiment is quite something. There have been rumours that the Fed is trying to force the gold price down, given that its price surge was evidence that people were losing trust in the US dollar – an embarrassment for them and it also served as a constant reminder of the market's concerns over their policies.
Then of course Cyprus was reportedly a seller of gold to raise cash. But still, I guess perspective is important – gold is still more than twice the price it was four or five years ago. As always it’s just very hard to get through all the spin and PR to work out what is really going on.
Anyway, over in Europe, stocks had a worse session of it – the major indices there off 1.6 per cent on the Dax, 1.2 per cent on the CaC and the FTSE100 fell 0.5 per cent. Part of the reason for that, other than disappointing US data, are stories going around, or uncertainty over whether Cyprus needs more assistance. Data itself wasn’t too bad, with European industrial production up 0.4 per cent in February.
As for the week ahead, I’m not sure that it’s going to be all that exciting unless we see some magic on the US earnings front (kicks off properly this week) or out of the run of Chinese data we get today (GDP, industrial production and retail sales). Chinese data usually comes in pretty close to expectation so that’s unlikely. At the moment, forecasts are for decent but not spectacular growth – GDP up 8 per cent, industrial production up 10 per cent.
Otherwise the mood is souring, that’s for sure, and outside of those two items there isn’t likely to be anything to change that this week. For Australia we get two main data prints – today Aussie home loans are out at 1130 AEST and car sales come the same time tomorrow (Tuesday) along with the Reserve Bank's minutes. But that’s pretty much it.
For the US, as always there is a decent run of data, the key ones being the US Empire state manufacturing index tonight, and inflation figures tomorrow night alongside housing starts and industrial production. There are a few other bits I can talk about on the day and as is often the case there are plenty of Fed speakers.
Hope you have a good week…
Adam Carr is a leading market economist
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