US equities and precious metals rose last week despite the spike in US bond yields and a stronger US dollar. The silver price rose 1.1% last week, bringing gains over the past 8 weeks to 27%. The gold price also rose, bringing the total increase to 14% since its 5 July low. ….
ETF Securities Research
While the spike in US bond yields is pressuring many financial assets, precious metals took the latest release of the Fed’s FOMC minutes in stride, ignoring the Fed’s statement that it is “broadly comfortable” with moving ahead with reductions in bond buying in the near future. This week investors will focus on the second reading of US’s Q2 GDP and will be poised for further developments in Syria and the Middle East more generally, that could trigger further increases in oil prices.
Most commodities ignore tapering talk. Despite ETP selling of precious metals this year, demand from physical buyers remains strong and has helped sustain price rises. Gold and silver have risen above US$1,400/oz and US$24/oz respectively, marking a bullish signal for the two metals that had difficulty crossing these lines over the past few months. The fact that both gold and silver prices ended the week higher indicates that the start of Fed tapering may have already been largely been priced in to precious metals prices. Rising tension in Syria may have Concerns over dry weather in the US Midwest sent soybean prices 5.4% higher and corn 1.4% higher last week. While significantly better than last year (which was one of the worst droughts in the US since the 1950s), corn and soy plants continue to lag behind their long-term average in terms of development. Insufficient moisture can have a significant effect on soybeans at the current stage of development. Arabica coffee price hit a 4-year low last week on the back of a record crop in Brazil, the world biggest Arabica producer, and a weak Brazilian Real. Natural gas prices rose 3.7%, aided by warmer-than-expected weather in parts of the US.
FTSE® MIB Super Short Strategy (2x) Index surges 3.4% on fears of political crisis in Italy. The short strategy benefited from the threat of a government crisis that could delay Italy’s much needed economic reforms. However, not all European markets recorded a negative performance last week. The DAX® 2x Long Index was up 0.5% on better than expected German PMI and export numbers. Despite growing uncertainty around the timing of the US Fed’s tapering weighing on US equity markets last week, the Russell 2000 small caps index rose 1.4%. Strong US growth and higher domestic exposure have benefited small caps so far this year. At the same time, a fall in demand for cargo transport along with an increase in supply has prompted a 2.1% drop in the DAXglobal Shipping Index last week.
Indian rupee slumps to a record low. With the outlook for the Indian economy rapidly deteriorating, the Indian rupee (INR) has fallen to fresh lows, having depreciated 18% against the US dollar in the past year. Despite the instalment of a new Finance Minister last year and the appointment of a respected ex-IMF Chief Economist to lead the central bank starting later this year, confidence in India’s ability to navigate its way through mounting fiscal problems appears weak. News of the INR1.35 trillion (US$20.94 billion) Food Security Bill to provide cheap grain to the poor, a populist action ahead of the May 2014 elections, has renewed doubts about India’s reformist credentials. The more recent declines in the rupee may be the shock that will force the reformist zeal of the 1990s to return.