Gold has been pushed lower in the past twelve hours. Having broken some of its short-term consolidation the precious metal is near 1435.00 USD as of early this afternoon GMT. Other commodities are also under pressure in trading today. However, bourses continue to display a flair for moving up. Investors when spoken to by and large claim that a huge amount of money is still on the sidelines, which is interesting in itself considering the massive elevator ride Wall Street has been on since the beginning of this year. Data has remained light all week and today has been no different. But somehow U.S. markets and their counterparts in the global equities continue to sing sweetly.
Industrial Production numbers from Italy were published earlier today and were negative turning in a result of minus -0.8%. Having said that Italian borrowing has hit new lows along with other European bonds as investors have apparently proven that they either have bought into the ECB confidence game or don’t know anywhere else to park their money. It is not polite but over time it may be proven that they may be like a herd of lemmings heading for a cliff. It is clear that many institutional investors including pension funds would rather lose a bit of money over the long-term as their money sits in bonds, knowing full well that in that same amount of time inflation will likely be higher than their yields. In other words, preservation is the guiding force instead of risk taking.
Unfortunately for many, what seems like a rather tranquil decision to buy a variety of European government bonds now, may turn out to be a rather precarious notion in a few years time if there is no government money to pay off the debt. This is our opinion obviously and nothing is written in stone, but the massive recession plaguing Europe has not disappeared and we expect that problems are merely being pushed down the road and will not be able to be avoided as time marches on. What has vanished is the notion that austerity in Europe is the only way to handle the financial crisis, and it has led to what in our estimation is a bag full of tricks open to interpretation and an E.U inspired and empty prayer that everything will be fine tomorrow without a clear outline on solving the real problems.
The EUR has declined today and is testing its lower short-term boundaries. The JPY made another rocket like move towards further weakness earlier today and its trend doesn’t appear ready to change anytime fast considering that the Japanese government is accomplishing its goal of crushing its own currency. But just how happy will the Chinese and Koreans be about this JPY devaluation and what will they do about it? Both the Yuan and KRW have grown stronger in recent trading and this will likely hurt their important export establishments and overall GDP’s respectively.
A real dichotomy exist in the market place. The economy of the U.S. is still not out of the woods, the Europeans are certainly well within the depths of a ‘great recession’, the U.K. is struggling, along with almost every other major economic power. Nevertheless citizens are still calm because a very important barometer for them remains intact – equity markets have not plunged but in fact have climbed, and the word depression has been able to be avoided.
Traders must remain alert to all temptations to buy into the spoken lines by the actors involved in this drama. Populist governments abound and the medicine for curing what ails the global economy has not yet been given to the patient. The bubble that has transpired in the equity markets is looking rather dangerous. Market participants need to be able to react at a moment’s notice. The weekend approaches with the appearance that all is calm, but evidence exist that not all is well. Investors have been swept up into a complex confidence game that is being played by skilled politicians who continue to pray that nobody pulls back the curtain and finds what might climb onto the stage for the next act in this theatre of absurd economic policy. Traders should pay strict attention to short-term trends and use their risk management skills carefully. The markets are in the hands of a fragile psychology that for the moment remains optimistic, but for how long?