Today’s AM fix was USD 1,715.00, EUR 1,347.42, and 1,075.84 GBP per ounce.
Yesterday’s AM fix was USD 1,730.50, EUR 1,345.86, and GBP 1,080.75 per ounce.
Silver is trading at $31.85/oz, €25.10/oz and £20.00/oz. Platinum is trading at $1,546.75/oz, palladium at $607.30/oz and rhodium at $1,100/oz.
Gold rose $2.10 or 0.12% in New York yesterday and closed at $1,718.30. Silver hit a low of $31.209 then recovered in late trade but still finished with a loss of 0.56%.
- Obama First Since FDR Re-Elected With 7.9% Joblessness (Bloomberg)
- China Party Meets to Anoint Next Leader (WSJ)
- Hu Sets China Income Target for Xi as Communists Gather (Bloomberg)
- Hu Jintao dashes hope for political reform (FT)
- Spain Sells $6 Billion Debt, Placing Longest Bond Since 2011 (Bloomberg)
- Japanese Politicians Move to Steer Away From Fiscal Cliff (Bloomberg)
- Hu says graft threatens state, party must stay in charge (Reuters)
- Weidmann in Defeat Still Influences ECB Bond-Buying Plan (Bloomberg)
- Spain Said to Consider Palace Sales to Raise Cash (Bloomberg)
- First-term headwinds look set to turn (FT)
- Focus Shifts to 'Fiscal Cliff' (WSJ)
- Obama Victory Paves Way to Continue Fed Policies (Hilsenrath)
- Swiss, Greeks Begin Talks on Tax Deal (WSJ)
Against the backdrop of a tepid US recovery, Eurozone recession and stuttering growth across emerging markets, investors are beginning to focus on how the 'status quo' outcome impacts the odds of cliff-avoidance; which after all, if there is one thing economists agree on, it is that a US and global recession will ensue if the legislated tax increases and spending cuts worth roughly 3.5% of US GDP take effect next year. UBS believes that if the US economy dips into recession, operating earnings -which are near peak levels - could easily plunge by a fifth. Risk premia would climb, particularly because the US and the world have run out of policies that could lift their economies out of recession. Those factors point to significant downside risk (at least 30%) for global equity markets if the US falls off the 'cliff'. Yet the S&P500 remains within a few percentage points of its cyclical highs. Accordingly, as we have previously concluded, investors assign a very low probability to the ‘cliff’ and a 2013 US recession, which UBS finds 'darn surprising' that this much faith in common sense prevailing in Washington amidst such divisive politics. But for all the attention the ‘cliff’ deserves, UBS notes the fundamental challenge for the US (and many other countries) is to address fiscal stability as a long-term necessity, not a short-term fix.
Investors should prepare for rising prices and more expansionary monetary policy now that President Barack Obama has won re-election, investor Jim Rogers told CNBC on news of the election. The co-founder with George Soros of the Quantum Fund said he expected Obama’s policies to drive up commodities and drive down the U.S. dollar. As the Federal Reserve moves to ‘stimulate’ a stalled economy through debt purchases, Rogers says markets should expect the status quo to remain the same. “If Obama wins, it’s going to be more inflation, more money printing, more debt, more spending.” Rogers told CNBC, saying he expected to sell U.S. government debt and buy precious metals, such as silver and gold. “It’s not going to be good for you me or anybody else.”
Obama has been reelected, the Senate remains in the hands of the democrats, while Congress is controlled by the GOP. Most importantly, the printer is firmly in the hands of Ben Bernanke. In other words, nothing has changed, as was largely expected all along. The worst case scenario - a protracted litigation, challenging the results of the election - has been avoided after Mitt Romney contested shortly before midnight, and as a result the immediate downward gap in risk following the election has been largely recouped overnight. More importantly, '4 more years' of the same monetary policy and no end to currency dilution have resulted in a nearly $50 jump in gold overnight with the metal in the $1720s this morning, because while the Fiscal Cliff remains hopelessly unresolved, and the baseline scenario that the market will need to tumble to shock politicians into waking up, remains (as does Goldman's 1250 year end S&P price target), the reality is that no matter what happens, Bernanke and crew will print and monetize the coming deluge of debt (which would also have been the case if Romney had won). And with total debt set to rise to $22+ trillion over the next 4 years, a deluge it will be. Most importantly, with Obama reelected, Europe is now "off the hook" and can finally rock the boat, which means Greece can take its rightful place at the front of the domino chain. Remember: the latest Greek austerity vote is today and voting (i.e. debating) has begun, and with vote results expected later today. It also means that the military festivities in the middle east, where the US now has 2 aircraft carriers and 2 marine assault groups, can resume.
Less than impressive macro data from the Eurozone failed to depress investor sentiment and as such, equity markets in Europe traded higher as market participants looked forward to US elections. Heading into the North American open, all ten equity sectors are seen in the green, with technology and financial stocks leading the pack. Still, despite the choppy price action and lack of progress on the much desired Spanish bailout, peripheral bond yield spreads are tighter, with SP/GE and IT/GE tighter by c. 6bps. EUR/USD failed to break below 1.2750 barrier level earlier in the session and since then stages an impressive recovery, partly helped by weaker macro data from the UK.
Today it is all about the elections. It is not about last night's relatively surprising RBA decision to not cut rates (on an attempt to create a reflexive feedback loop when it said that China has bottomed; it hasn't, and the RBA will be forced into another "surprising" rate cut as it did previously). It is also not about Europe missing its Service PMI estimate (just like the US), with the composite printing at 45.7 on expectations of a 45.8 print (with both core countries - Germany and France - missing badly, at 48.4 and 44.6 on expectations of 49.3 and 46.2, respectively). It is not about reports that the EU believes Spain's GDP will again contract more than expected (it will, and certainly without any reports or beliefs). It is not about Greece selling €1.3 billion in 26-week bills even as, according to ANA, its striking power workers have taken 5 power plants online just as winter approaches. It is not about Jean-Claude Juncker telling the truth for once, and saying that Europe is still in crisis, and is facing the viability of the Euro (after saying weeks ago that the Euro is unshakable) and that some countries aren't facing up to their responsibilities. It most certainly isn't about German factory orders finally collapsing as the country is no longer able to delay its slide into full-blown recession, with a September decline of 3.3% on expectations of a modest drop of -0.5%, from the previous decline of 0.8% (the German ministry said that a weak Eurozone and lack of global growth are taking its toll; they will continue taking its toll for years and decades longer). No. It is all about the US elections, with the peak frenzy starting as soon as polls officially close at 8 pm. Everything else is noise.
The center cannot hold because it has failed the nation by defending the Status Quo kleptocracy. As a case study, let's look at Greece, a nation that is the leading-edge of Status Quo delegitimization and destabilization. As the Status Quo fails to protect the national interests and the citizenry from the neofeudal kleptocracy, faith in the political center fades. What happens when people lose faith in the financial institutions and their coercive "fixes"? They move their capital to less-risky, more productive climes. In other words, capital flight is another positive feedback: as people move their capital out of the country, then there is less available per capita for productive investment. The same holds true for every nation ruled by kleptocratic Elites that has attempted to "grow our way out of debt" by piling debt on debt. Doesn't that include Spain, Italy, China, the U.S. and a host of other nations?
As we warned here first, and as the sellside crew finally caught on, while the key macro event this week is the US presidential election, the one most "under the radar" catalyst will take place in Greece (currently on strike for the next 48 hours, or, "as usual") on Wednesday, when a vote to pass the latest round of Troika mandated austerity (too bad there is no vote to cut corruption and to actually collect taxes) takes place even as the government coalition has now torn, and there is a high probability the ruling coalition may not have the required majority to pass the vote, which would send Greece into limbo, and move up right back from the naive concept of Grimbo and right back into Grexit. Which is why the market's attention is slowly shifting to Europe once more, and perhaps not at the best time, as news out of the old continent was anything but good: Spain's October jobless claims rose by 128,242, higher than the estimated 110,000 and the biggest jump in 9 months, bringing the total number of unemployed to 4,833,521, a rise of 2.7%, according to official statistics released Monday. This means broad Spanish unemployment is now well above 25%. In the UK, the Services PMI plunged from 52.2 to 50.6, which was the lowest print in nearly two years or since December 2010, and proved that the Olympics-driven bump of the past few months is not only over, but the vicious snapback has begun.
Countries that have the luxury of their own exchange rate are able to eliminate any loss in competitiveness through an exchange rate depreciation, but (as is broadly recognized by now) UBS reminds that in a single currency area the only route available is an adjustment in relative wages. "Integrate or die" is how they describe it as the impact of even a Greek exit is now well-known as the start of the end for the euro as bank runs would instantaneously begin. Instead of instantaneous devaluation (exit) - akin to tearing the (admittedly big) band-aid off, the devaluation will be undertaken over time to restore competitiveness, with the brunt of the adjustment taking place through wages and inflation. This equilibrium 'devaluation' is impossible to know with certainty, but UBS estimates it is over 20% for Greece and 15% for Spain. How patient will the market be in waiting for the promise of integration to cover this slow and steady competitive devaluation; or alternatively how patient will Greece's poverty-stricken population put up with it? The reflexive nature of the market will accelerate any perceived move in this direction... a 'painless' 15-20% devaluation in Greece and Spain backed by the ECB's promises seems to us the stuff of hopes and dreams and unicorn farts.
Otherwise, it would take down the entire universe.
You cannot "reform" away the dysfunction of the Greek Status Quo without dismantling the vested interests and the ruling Elites that benefit from the Status Quo. The same can be said of the Status Quo everywhere from the U.S. to China.
Judging by complete lack of move in the futures since the last time we looked at them at close of US market (if not so much the EURUSD which moments ago touched its lowest level since October 10 below 1.2865), absolutely nothing has happened in the intervening 14 hours. Which wouldn't be too far from the truth. Europe reported its manufacturing PMIs, which while largely unchanged at the consolidated (Eurozone 45.4 on Exp. of 45.3, last 45.3) and core level (Germany 46.0 vs Exp. 45.7, Last 45.7; France 43.7 vs Exp. 43.5, last 43.5) showed some weakness for the one fulcrum country that everyone looks at: Spain, whose Mfg PMI dropped from 44.6 to 43.5 on Exp of 44.1. But at least the threat the ECB will buy its bonds is there. And Speaking of Spain (whose car registrations tumbled 21.7% in October), the first external condition appeared today, when EU competition commission Joaquin Almunia said seized Spanish banks must fire half their workforce, according to ABC. Finally back in the US, the Fed's Rosengren said the Fed will not stop monetizing until the jobless rate falls below 7.25%. Luckily, with the NFP report due in 90 minutes, and the labor participation rate set to tumble once more, we may just get that in today's key data highlight which everyone is waiting for.
First it was news that Europe's weakest link may be broken following a Greek court doing the unthinkable, and actually enforcing the constitution, and now we learn that in addition to at least one definite defection from the Greek coalition government - PASOK (as reported earlier), the entire party is now on edge as its leader, former PM Evangelos Venizeloz seeks to quell a "rebellion" ahead of next week's vote which will hardly make the government any more popular in the eyes of the general population. From Kathimerini: "PASOK has plunged into turmoil as one MP and a prominent official quit the party following a fractious vote on the government’s privatization bill on Wednesday. The draft law paving the way for the sell-off of a number of utilities and ports passed narrowly and the failure of 17 PASOK MPs to support the legislation led to party leader Evangelos Venizelos, who failed to take part in the vote himself, calling an urgent meeting with his 33 lawmakers on Wednesday evening." Why is this relevant? Because two days ago, as reported, the third member of the ruling coalition: the Democratic Left, which mans 16 votes, announced it would vote against the Troika demands. This leaves the coalition with 160 votes on a matter in which it needs a majority. Should Pasok's 17 votes also be in danger of pulling out (assuming nobody from New Democracy votes no), then one can see why Greece may once again hold the fate of the Eurozone in its hands just as the US is voting for its next president and hardly needs more European drama.
While Europe continues to plan and scheme, content in the knowledge that Greece can do nothing to derail plans of status quo preservation, especially ahead of next week's critical parliamentary vote that will see the country imposing even more austerity on its people (see the great profile in the AP today in "Hit by crisis, Greek society in free-fall"), Greece has just decided to pull a "Karlrushe Kardinals who say Nein" move, and as Reuters reported moments ago, the entire process may be scuttled by none other than yet another court, this time in Greece:
- GREEK COURT SAYS PLANNED PENSION CUTS, RETIREMENT AGE INCREASE SOUGHT BY EU/IMF LENDERS MAY BE UNCONSTITUTIONAL
What this means is that suddenly Greece once again has all the leverage (recall that last year the mere threat of a Greek moratorium cost G-Pap his job), a development which in June sent Europe plunging on fears that Greece may vote itself out of the Eurozone, leading to a Grexit, the return of the Drachma, redenomination, collapse in risk levels, the apocalypse and other bad things.