Friday, August 1, 2014

Strong Dollar and Positive U.S. Economic Data Contribute to Market Anxiety

A body of positive U.S. economic news was released this week, strengthening the U.S. Dollar and contributing to a slight weekly dip in precious metals. The surging dollar also contributed to declining relative values of a number of world currencies, with the British Pound, Euro, and Japanese Yen - all trading lower versus the dollar.  

Analysts predict that the dollar could trade at 105 Japanese Yen by the year’s end; it currently trades at around 102.7.  Meanwhile, the British Pound saw its largest monthly decline against the U.S. Dollar in over a year.   News released this week includes the highest consumer confidence level in the U.S. since October 2007.  Strong second quarter Gross Domestic Product growth was reported on Wednesday; the U.S. economy grew an annualized 4.0 percent rather than the 3.0 percent projected.  This is up from a contraction in Q1 GDP of ­2.1 percent, revised up from the previous value of ­2.9 percent.

This positive growth outlook was followed Thursday by a reported 0.7 percent increase in employment costs for Q2, which includes wages and benefits.  July nonfarm payroll numbers released on Friday came in at 209,000, lower than the 230,000 expected.  Despite this shortcoming, July is the sixth straight month of 200,000+ job growth.  The stock market responded to this chain of positive labor numbers with selling in fear of the Federal Reserve increasing interest rates sooner than expected. Federal Reseve Chair Janet Yellen has stated that the U.S. central bank will focus on labor numbers such as wage growth to determine when they will raise rates.

The Dow Jones Industrial Average and the S&P 500 both ended in the negative for the month of July, with selling helped along by poor earnings reports and projections by a number of companies Thursday. The Dow opened this week at 16,956.91 on Monday morning, climbing slightly through Tuesday’s open. Tuesday and Wednesday saw slight losses with an acceleration on Thursday as the Dow lost more than 300 points. The S&P 500 remained relatively static throughout the week until it too saw large losses on Thursday. The Nasdaq opened to a sharp drop on Thursday as well, losing more than 40 points in overnight trading on Wednesday night. U.S. stocks opened to slight losses on Friday, continuing their week­long skid.

Argentina defaulted on its loan payments this week, which compounded with worries over an increase in U.S interest rates, poor earnings reports, and the effects of sanctions against Russia to negatively impact European stocks heading into Friday. The Asian stock exchanges were less gloomy as the Nikkei and Hang Seng both saw gains throughout the week until Friday when both exchanges declined slightly. Precious metals saw some relief Friday morning after prices fell throughout the week. Gold moved upward towards $1,300 per ounce after dropping below $1,285 per ounce on Thursday. Platinum and Palladium also saw losses this week, but supply concerns may affect prices in the future. A five­month strike at Lonmin’s South African mines has ended, but production is still below half capacity, projected to reach full capacity by the year’s end. South African platinum production was also hurt by an accident at Northam Platinum’s Zondereinde mine where a shaft elevator was damaged, cutting production there by 50%.

­The Content Team at Gainesville Coins:

Everett Millman
Terrance Campbell
Marty Menz