We have Asian markets much stronger over night bouncing on the ‘good’ news of Euro increases in money supply to both banks and greece through the effective creation of euro bonds through the EFSF. This is very good for asset markets as more loans equals more money which makes each existing unit worth less so prices rise in response. Given negative interest rates market participants always make plenty of money on money supply increases. Its easy money and easy to explain.The US issues re the debt ceiling continue. It is 99.99% certain the ceiling will get raised and some long term debt reductions agreed or rather the pace of debt increases is slowed over a ten year period starting from 2015 etc. This sort of deal will be done eventually. The deal will simply be an official sanctioning of more money supply expansion.
So, less easy to explain from yesterday are a few issues.
Firstly why the euro rose against most assets inc gold, usd, cad, even the chf. Why would more money supply cause the euro to rise is counter intuitive indeed. We can only rationalize this as Asian buyers happy with that the euro will continue to be around in her current form and she will continue, therefore to act as a mirror to the reserve currency ie the usd. A higher euro helps asian exporters so for now the charade continues.
Secondly, why did gold fall on the news? Technically she had bounced up in the prior weeks and she was a little over bought but nonetheless to fall on a day of more money supply seems the opposite of what you would expect. Perhaps the market had expected the EFSF fund to be increased in size and therefore gold had already discounted the response. Possibly some element of both are true. Currently both fundamentals and technicals point to a higher gold price.
The dollar index looking very sick, indeed. Aud looking wonderful and yielding. The gbp adding weight vs the usd and looks to have rolled over the forward party attacking sterling vs the usd. One analyst explained sterling as having more lives than a cat. This is my view too. She steps away from the edge again and again it seems. Patience, not problem.
Oil broken out, in theory and is an add on small pull back now. US equity indexes ditto.. we have overbought levels now and a mixed fundamental picture for sure. I’ve personally been lightening and am now at 30% hedge or so. I made some profits on the way down and now see a loss on the way back north on my hedges. A hedge is an insurance policy so this is fine. The long portfolio remains almost unchanged but once again lite copper and tech. We are in the summer months now, i find it unlikely we really push on here and now but i do want to get paid to wait so the high yielders run as they were. Precious metals, technically and fundamentally, imo (as above), look excellent and ready for breakouts.
We are in the generally slower and more choppy summer so we should follow the market lead and not get too carried away by current moves on an intraday basis.
All the best
Rich
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