Monday's markets opened with far less "Europtimism" than had been manifest on Friday and traders once again flocked to the relative safety they continue to perceive in the US dollar. The euro did not mount an advance towards the $1.38 level, European stock markets lost some ground, and commodities did not take off in the robust fashion that had been expected when the weekend rolled around. To wit: Italian bond yields ticked higher despite the job changes taking place at the Quirinal Palace in Rome.
About the only folks who appeared to be in a celebratory mood in recent hours where the throngs in the streets of Rome who were seen out en masse chanting "Buffone! (Clown!) and "In Carcere! (To Jail!)" when the "Cavaliere" passed them by in his limo on the way to his long-awaited resignation. Mr. "Bunga Bunga" faces up to 40 (forty!) court "dates" between now and next May - some of them for "paid dates" with allegedly underage nightclub "personnel." Then there are myriad charges for corruption in his media empire and such. Bravo.
Thus, gold spot dealings in New York opened the week on a downward note, losing from .50% to 1% and basically trading in a channel of from $1,770 to $1,780 without Friday's display of bullish energy. Spot bullion commenced trading at $1,781 per ounce with a loss of $8 as the "Mario 1UP" bounce failed to materialize in various markets. The opening mood might still morph into an upbeat one as we have recently witnessed on more than one occasion where the dollar climbed and, counter-intuitively, so did the yellow metal.
Still, gold market contrarians remain on "alert" following Friday's nearly unanimous Bloomberg weekly gold survey in which 21 out of 22 traders chimed in as "bullish" for this week. As well, market players are keeping a close watch on the ebbing of physical offtake in the gold market and the dominant position in the space that the specs and investors have come to take. For the time being however, the two price buoys on the ends of the "must-watch" spectrum in gold remain the ones floating at $1,580 and at $1,900+ per ounce.
Silver dipped 24 cents to open at the $34.42 per ounce mark and was apparently stuck in a $1 range that extended from $34 to $35. The noble metals group did enjoy a minor lift however, with platinum advancing by $5 to the $1,644 level and palladium rising $2 to the $658 bid-side quote. Rhodium remained at $1,675 per ounce.
The Dow initially fell about 20+ points in a lackluster start to the trading week. In the background, black gold slipped 70 cents per barrel to the $98.30 level while copper staged a 1.72% advance. While today will be lacking in economic statistical data releases, this is certainly not going to be the case over the next four days A slew of information from retail sales to CPI and from housing starts to LEI are in the pipeline and will likely provide plenty of fuel for market twists and turns during the week. But, back to the current situation for now: the anticipated market stabilizations in the wake changes in leadership in Greece and now in Italy have shown signs of fading rather fast as the new trading week got underway.
The optimism that was supposed to lift European equities and the common currency eroded after yet another set of reassertions by the ECB that it will not succumb to pressure and play a bigger role (read: print money) and after Chancellor Merkel again rejected suggestions that the EU's members get together and issue some kind of joint bonds. In plain English (or German) Bundesbank President Jens Weidmann told market vigilantes and other printing aficionados that "Monetary policy cannot and must not solve solvency problems of states and banks, this has to be decided by national parliaments,"
Perhaps the best evidence of just how the markets felt about the changes in Europe was found not only in the assorted losses among European equities but in the gains that the US dollar enjoyed against the euro and on the trade-weighted index (where it rose .075% to 77.33). Such developments coming literally within hours of pivotal changes in certain of the region's governments underscore the fact that a (un)healthy dose of skepticism continues to lurk among investors and market observers.
The aforementioned remain skittish about to the ability of newly-installed Prime Ministers Papademos and Monti to bring the prolonged debt crisis to its end any sooner or any more efficiently than their predecessors tried to, despite promises from both of them that fresh austerity measures combined with their commitment to remain in the eurozone might do the trick. Markets had initially construed the gentlemen's "technocrat" backgrounds as a positive factor in the battle to once and for all resolve the European quagmire.
Now that leadership changes have been undertaken in two of the region's most-impacted-by-fiscal-problems nations, the focus is shifting towards an overhaul of the overall union. Ms. Merkel, speaking at her CDU party's annual congress this morning, outlined broad suggestions that the economic and currency union thus far in place needs the "breakthrough" of a political one as well lest the euro disintegrate and, along with it, the whole construct of the EU.
In effect, Ms. Merkel would be loath to go down in the history books as the person under whose watch the euro went by the wayside. At this stage however, concrete line items as to how the "NEUropean" system will shape up in coming years are lacking sufficiently for the markets to do that which they are doing: remain jittery. As mentioned earlier, the markets also remain nervous about "Super Mario Monti" and his ability to jump as high as might be needed to overcome this wall.
Part of such jitters revolves around the fact that not only is Europe visibly slowing (factory output in the EU bloc fell 2% in September, spelling "looming recession") but that - according to the OECD - the entire global economy's loss of momentum is continuing as well. The Paris-based think-tank issued an October warning that projected a two-year period of weak(er) growth and high(er) unemployment among the planet's developed nations.
One of the metrics that the OECD employs in making such unpleasant forecasts is the reading of new business formation and launch in its member countries. The other is of course, the temperature level in various nations' leading indicators. Declines to under the 100 level have been noted in China, India, Germany, the UK, Brazil, Italy, France, and Canada. Japan, Russia, and the US remained above the century pivot point in September. Enough said. Other than, perhaps, the dollar has another reason not to be in the ICU.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.