Equities and gold break down

Market participants see global equities breakdown as lingering concerns over the world economy and geopolitical fears come to fore.

Bullion.Directory precious metals analysis 31 July, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

The S&P 500 saw a decline of nearly 40 points, while the DOW fell 318 points, both closing down in negative territory for the year. The CBOE volatility index (VIX) increased to a session high of 16.30, up 22 percent.

In the US, initial jobless claims printed 302,000 for the prior week, beating economist expectations by 1,000.

This was a quick jump higher from the previous jobless claims figure of 284,000, which was revised lower to 279,000. Traders still feel that the labor market is heading in the right direction and remain optimistic.

What was troubling is that the employment cost index (ECI) came in higher than expected, up .7 percent versus economist forecasts of .5 percent. Higher labor costs will eat into corporate profits that still remain near record highs.

According to Jim Russell, senior equity strategist for US Bank Wealth Management, “the market has been extremely resilient over the course of Ukraine, Iraq and now Israel; to pile on a bad macro number and a default is asking too much.”

Globally, the Eurozone flash CPI data showed that consumer prices continue to slip closer to deflationary territory.

Consumer prices in the Eurozone fell from .5 percent to .4 percent. Coupled with stagnating growth, the economic outlook in the region remains gloomy.

Argentina will default on its debt obligations for the second time since 2001. The default could leave prolonged effects throughout the emerging economies, as seen in 2001. It will likely affect US financial markets to some capacity as the majority of Argentina’s bond holders are of US-origin.

Nevertheless, a 40 point decline in the S&P 500 did nothing to safe-haven assets.

The yen moved little after its steep sell-off post-FOMC minutes. Gold declined further due to technical selling, with futures deteriorating to close below $1,301.80 per toz. Little demand was seen at minor support levels of $1,295.30 and $1,290.20.

Gold prices remain under pressure, and futures could trade lower to $1,273.80 with additional support a $1,265. However, the intense oversold condition on the near-term timeframes could offer a pullback in prices.

Resistance can be found at the recently broken support levels.

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