Saturday, January 10, 2015

Stocks Undulate, U.S. Dollar Dominates

QUICK READ: After the prolonged losing streak for U.S. stocks extended into this week, the equity markets turned around by midweek and wiped out their steep losses to begin 2015. The precious metals surged in response to stock market weakness on Monday and Tuesday, yet were steady even as paper assets recovered and Treasuries eased by week’s end. 

U.S. stock indices went on a roller coaster ride this week, albeit a rather unimaginative one. Continuing last week’s trend, all three major indices sank by about 1.8% on Monday, with the Dow Jones shedding over 300 points. This marked the biggest single­-day loss for U.S. equities in 3 months. Although CNN jokingly suggested that is was a bad “case of the Mondays,” the slide continued into Tuesday at a more moderate pace. Meantime, precious metals advanced, with gold adding about $35 over two trading days despite WTI crude oil dropping below $50/bbl. With the outflow from stocks, 10­-year Treasuries saw significant safe haven flight, driving yields lower for the 8th consecutive day, the longest such streak in more than 2 years. By midweek, the 10­-year T­-note yield fell as low as 1.95%.

The dollar surged throughout the week, rising above 92.0 on the DXY index (a 9­-year high) while the euro continued to drop. The purchasing parity between the two leading world currencies fell below $1.20 per euro for the first time in nearly a decade. The strength of the dollar has hidden gold’s performance, as the yellow metal touched €1,030/oz, its highest pricing in euros since September 2013. For context, over the course of 2014, gold was up more than 11% in both euros and yen.

Wednesday’s market activity was largely overshadowed by the horrific terror attacks on French satirical magazine Charlie Hebdo, but stocks nonetheless began to reverse direction while the precious metals were largely flat. The Dow Jones, S&P 500, and Nasdaq each added about 1.25%. WTI crude actually rose about 1.75% even though Brent crude closed slightly in the red, bringing the spread between the two benchmarks closer together as energy demand wanes in Europe. This of course boosted the dollar, as the USD and oil prices have an almost perfect inverse correlation. On Thursday, stocks jumped even more sharply, with the Dow adding over 300 points to erase nearly all of its 2015 losses. The precious metals held their price positions before advancing moderately on Friday. In spite of an otherwise strong non-­farm payrolls report, the stock markets tracked slightly lower in Friday trading due to poor wage growth numbers: December saw a 0.2% decline in wages, while November’s 0.4% gain was revised downward to 0.2%. Treasury yields finally eased, settling back above 2.0%.


Next week is littered with new economic data, especially at the end of the week: the Producer Price Index (PPI) for Final Demand comes out Thursday along with the previous week’s jobless claims. On Friday, the Consumer Price Index (CPI), consumer sentiment gauge, and industrial production numbers will all be released.

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.