Gold and Bonds Higher on Bad Data

Gold starts 2015 well; US 10-Y note drop through two percent.

Bullion.Directory precious metals analysis 6 January, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

Equities continue to plunge as crude prices and global growth worries continue. Traders are hacking crude at the legs with fears that the fundamental aspect of supplies will continue to hurt black gold. Some traders are so bearish, $20 oil is beginning to circle. Poor data out of the US is also providing fuel for the fire.

Crude is still on the front burner. West Texas Intermediate (WTI) falls to $48 per barrel. Here, I explained that a close underneath $53.50 per barrel would trigger a fresh round of selling. Equities are continuing the trend of selling off into the European close. Questions have risen on whether ECB President Mario Draghi can get QE in the works. It is looking unlikely that anything significant will be started by July. “Sovereign” QE – ECB to openly purchase sovereign bonds – is looking very unlikely, and it is weighing of expectations.

The US 10-year is following crude lower. DoubleLine’s Jeff Gundlach looks for 1.38 percent on the 10-year note if crude’s collapse continues. Action in the treasury and high-yield markets are suggesting that trouble is brewing. Technically, the 10-year note looks strong on the long-dated charts and could be poised for a stretch higher. Price action has a bit of resistance ahead, but a close above and the 10-year will likely retest October’s high of 130’170.

The seemingly always bullish ISM services PMI posted a three point slump, falling to June lows and the largest miss since 2013. Prices collapsed to levels not seen since 2009 – since the US was in recession? Every component fell in December, the first time since 2009. Prices contracted to 49.5, and Obamacare is still seen as a major factor that will impact business profitability. New orders continue to slide. Given that this winter is shaping up to be a Polar Vortex 2.0, growth is expected to contract significantly.

Chris Williamson, chief economist at Markit, had some worrisome words after saying job expansion will fall well below the 200,000 the market has been accustom to:

The PMI surveys act as a good leading indicator of GDP data, and suggest that the pace of US economic growth will have slowed in the 4Q. According to the PMIs, 4Q growth is looking more like two percent rather than the five percent annualized rate of expansion enjoyed in the 3Q.

 

Factory orders completely its forth continuous decline, falling to 19-month lows. The declines were broad, but consumer goods led the pack lower.

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