Brexit Fallout Limited?
In the run up to the Brexit vote, central banks, politicians, media pundits and the International Monetary Fund warned that a vote by Great Britain to leave the European Union would lead to economic disaster. The United States Federal Reserve, in part due to the upcoming Brexit vote, called off the possibility of a rate hike.
Delayed Calamity or a Grand Bluff?
About a month after the Brexit vote, global equity markets have recovered and the U.S. Dow Jones and S & P 500 indexes are hovering near all-time highs. Indeed, the IMF announced this week that it expected the UK economy to grow faster this year than the economies of Germany or France. The only visible remaining damage from Brexit is the credibility of those forecasting economic doom because of the Brexit vote and the state of the British Pound which is mired near its post Brexit vote low.
As stock markets race higher, Fed Presidents are back to Open Mouth Operations talking about perhaps two rate hikes in 2016. As Brexit recedes in the rear view mirror, an Italian banking crisis looms in the distance. For now, however, markets seem content to have dodged the Brexit bullet.
The New Outlooks’ impact on Gold, Silver and Currencies
Earlier in the year gold and silver rose when equity markets cratered and did the same when equity markets fell after the Brexit vote. Gold and silver have risen in 2016 in a near continuous fashion, while equity markets have risen and fallen in large measures multiple times during the year. The latest stock market surge has seen gold and silver prices head in the opposite direction. Since the stock market has risen for nearly seven years, some market observers are calling for a pause in the recent surge as the stock bull gets long in the tooth.
Gold and Silver
Gold and silver have been on a tear most of 2016. Gold gained more than 25% while silver’s gains approached 50%. In recent trading sessions both precious metals have pulled back as equity markets and the dollar charged higher.
Year to Date Dollar Index, Oil and Gold Prices
The price of gold and oil have pulled back recently while the dollar risen.
Year to Date Dollar Index, Oil and Silver Prices
Silver raced higher all year, topping $20 per ounce but has fall back in recent trading sessions.
Oil has fallen from its highs of over $50 a barrel to below $45 on continuing concerns of an inventory glut and slowing demand. Announced increases or decreases changes in inventory have been pushing the price of oil in both directions.
The Dollar Index* has under-performed so far in 2016 but has come to life in recent weeks. Brexit gave the dollar a small boost and renewed talks of interest rate hikes have steadied the dollar. The next non-farm payroll report will either provide fuel for the narrative that the labor market is improving, or confirm that June’s strong number was an aberration after poor non- farm payroll numbers in April and May. Until then, the dollar may drift higher as other currencies like the Yen, Euro and ECB hint at further stimulus and the Fed hints at rate hikes.
The British pound is down over 10% on the year. The Bank of England has been signaling that it may need stimulus later in the year, but kept interest rates on hold at its most recent meeting. The Pound was supported this week by a report that unemployment remained low.
The Euro has weakened recently on speculation that the European Central Bank may retain its dovish stance. The possibility of further European Union member states leaving have not damaged the Euro in any meaningful way so far this year.
The Japanese Yen
The Japanese Yen strengthened against the dollar about 10% in the first half of 2016 on ‘safe haven’ trading. In recent trading, however the yen has given up about half of its gains as the Bank of Japan talks of more stimulus and the Fed talks about rate hikes.
Next week’s durable goods orders might give some indication as to the strength of the U.S. economy as will the first reading of second quarter U.S. GDP. Second quarter earnings from US companies may also provide some direction to the currency, gold and silver markets.
Here are some reports that could impact gold, silver and currency movements next week. :
Jul 26 Case-Shiller 20-city Index May
Jul 26 Consumer Confidence Jul
Jul 26 New Home Sales Jun
Jul 27 MBA Mortgage Index 07/23
Jul 27 Durable Orders Jun
Jul 27 Durable Orders ex-trans Jun
Jul 27 Pending Home Sales Jun
Jul 27 Crude Inventories 07/23
Jul 27 FOMC Rate Decision Jul
Jul 28 Initial Claims 07/23
Jul 28 Continuing Claims 07/16
Jul 28 Natural Gas Inventories 07/23
Jul 29 GDP-Adv. Q2
Jul 29 Chain Deflator-Adv. Q2
Jul 29 Employment Cost Index Q2
Jul 29 Chicago PMI Jul
Jul 29 Michigan Sentiment – Final Jul
* The US Dollar Index tracks the US dollar vs. the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc. The Euro comprises nearly 58% of the index.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.