Scoreboard: Up, up and Abe

Wall Street saw modest gains and gold surged on the back of a weaker US dollar and the vote of confidence in Abenomics.

The most interesting price action last night was in gold. In the strongest gain in over a year (percentage-wise), gold rallied 3.2 per cent or $41 to $1334. A big move and sudden too, I would have thought. As far as I can tell the move reflects in part a weaker dollar, but I say only partly because currency moves weren’t that large. For instance the euro was up 40 pips to 1.3188, the yen went from 99.97 to 99.53 and the Aussie dollar was nearly 50 pips higher to 0.9253.

Some suggest the momentum built up yesterday after the Japanese government won elections in the upper house. That result is widely seen as support, or a vote of confidence, for the aggressive economic policies pursued by the Abe government. Then again, if that’s the case, I would have thought we’d see more action on the yen and maybe the Nikkei too (up a modest 0.5 per cent).

The flipside of course is that the talk in the US is still of a tapering. The only issue is timing and I guess the data last night wasn’t really supportive of a near-term tapering (which in turn helped the US dollar weaken etc.). Whatever the case, silver also got a boost, up some 5.4 per cent, while copper rose 1.3 per cent. Crude in contrast fell 1.1 per cent ($106.91 on West Texas Intermediate) on a bit of profit taking following the recent rally.

On the stocks side, the S&P500 hit another record, although gains themselves were modest overnight. I suspect some disappointing earnings from big brands like McDonald’s weighed, while housing stocks took a hit after the data showed the number of existing home sales fell 1.2 per cent in June ( 1.5 per cent was expected).

At the bell, the S&P was up 0.2 per cent (1695), the Dow was a couple of points higher (15,545) and the Nasdaq rose 0.4 per cent (3600). Financials, healthcare and basic materials were the key outperformers for the session.

In other news, the Portuguese government looks set to remain intact after the country’s president ruled out elections following the failure of the government to reach agreement on a “national salvation pact”. The government for its part stated that it would stick with the bailout terms, despite two resignations over austerity, and try to regain the market’s confidence. At this stage, the success of the austerity programs should mean that Portugal can again access the market next year and be free of bailout terms etc.

In the commodities space, the Commodity Futures Trading Commission used its new enforcement powers (under Dodd-Frank rules) to fine a high speed trading firm for manipulative trading. The remaining data was light and lower tier – the Chicago Fed national activity index rose to -0.13 in June from -0.29.

Finally, for the remaining price action, there wasn’t really much. US Treasury yields were a basis point higher to 2.48 per cent on the 10-year, while European stocks were mixed – the Dax was down 0.01 per cent, the CaC up 0.4 per cent and the FTSE off -0.1 per cent.

Looking at the day then ahead then, the SPI suggests Aussie stocks will rise 0.3 per cent. Not much other than that – the key data tonight includes US house prices and the Richmond Fed activity index.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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