Energy & Commodities
Jan 31 (Reuters) – A U.S. State Department study on the environmental impact of the Keystone XL oil pipeline will not represent a final decision on whether the United States will allow the project to go forward, White House spokesman Jay Carney said on Friday.
The State Department is expected to release the report soon. There will be a period for public comment and feedback from other government agencies.
NEW YORK, Jan 31 (Reuters) – U.S. Treasuries prices rose on Friday on month-end buying and lingering concerns about emerging market economies, putting safe-haven bonds on track to notch their strongest gains in 20 months in January.
Investors continued to flee emerging markets as the latest round of central bank actions failed to offset concern about rising economic and political risks in many developing economies.
“The risk-off theme continues. You have money coming out of equities and into Treasuries. It’s also definitely helping with month-end buying,” said Justin Lederer, Treasury strategist at Cantor Fitzgerald in New York.
The yield on the benchmark 10-year U.S. Treasury note has fallen 35 basis points this month, marking the biggest decline since May of 2012. Bond yields move inversely to their prices.
In contrast, the Standard & Poor’s 500 is down nearly 4 percent for the month, its biggest drop since May 2012.
The U.S. Federal Reserve’s expected decision on Wednesday to cut its asset purchases by $10 billion to $65 billion a month removed some support from emerging market assets, resulting in steady buying of safe-haven bonds and selling of riskier assets.
The $10 billion cut heightened concerns surrounding Turkey, South Africa and other emerging markets as the U.S. central bank further pared the liquidity that has boosted higher-yielding emerging markets assets.
Fed data released Thursday showed that foreign central banks slashed their holdings of U.S. debt stored at the Federal Reserve by the most in seven months during the past week.
The latest Fed data gave hints that some foreign central banks may have sold their Treasuries holdings to raise cash to buy their own currencies on the open market to stabilize them from further damage due to emerging market jitters.
Data on economic activity released Friday had little impact on Treasuries prices. U.S. consumer spending rose in December according to Commerce Department figures, but an ebb in consumer confidence and signs of cooling in factory activity this month suggested economic growth could moderate in the first quarter.
Benchmark 10-year Treasury notes were last up 9/32 in price to yield 2.66 percent, compared with a yield of 2.70 percent late on Thursday. The 10-year yield fell to 2.646 percent earlier, which was its lowest level since early November.
On Wall Street, all three major U.S. stock indexes fell on Friday, with the benchmark Standard & Poor’s 500 stock index dropping 0.43 percent.
In terms of asset purchases monetary policy was, is and will be accommodative. More importantly so is the case with interest rates, which are still flirting with zero percent range – despite the fact that that lowering was believed by some to be temporary. I remember that even in 2009 there were people seriously arguing that we should expect interest rate hikes in few months. The history has proven them to be astonishingly wrong.
The continuous message from the Fed is that even with asset adjustments the rates are supposed to stay low until official inflation becomes a danger, or unemployment is finally significantly lower. That is all fine, we understand the signal, but we are also curious as to when the Fed officials consider this to have happened? When do they expect either much lower unemployment, or endangering inflation rate – the point at which the interest rates are raised again? Interestingly we received some additional information on this at the end of year 2013.
In general Fed officials are seeing interest rate hikes on the horizon, but not in the near horizon. Here is the graph depicting interest rate levels in 2014 according to FOMC members:
Things may change in 2015, since that is the time at which most members see the hiking happening.
In any case, as you see, the possible backing away from very low interest rates is the topic to be discussed at the end of our New Year. For now it is out of the question. Interest rates are to remain low for the following months to come. Therefore do not expect to see big changes in monetary policy. The asset buying program remains in place, although slightly shaken (mostly by hot words coming out of few experts’ mouths); the record low interest rates are not going away soon.
What does it signal for the gold market? You all know it. Cheap monetary policy is a good fundamental variable boosting the demand for dollar alternatives – gold and silver.
Thank you.
Matt Machaj, PhD
Sunshine Profits‘ Market Overview Editor
Gold Market Overview at SunshineProfits.com
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Disclaimer
All essays, research and information found above represent analyses and opinions of Matt Machaj, PhD and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Matt Machaj, PhD and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Matt Machaj, PhD is not a Registered Securities Advisor. By reading Matt Machaj’s, PhD reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Matt Machaj, PhD, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Recent stock market weakness has stoked fears that we’ve hit a top in the S&P 500 and a “correction” is right around the corner. A “correction” is usually defined as a decline of at least 10% that was preceded by a rally of at least 10%. Since October 3rd, 2011 the S&P 500 has rallied 68.15% over 835 calendar days without a correction of at least 10%. The run up can be seen in the chart below.
A correction of some kind is eventually inevitable, but timing when that 10% drop comes is very difficult. There have been 4 rallies in the history of the S&P 500 that have had a longer streak than the current one, so this correction-free stretch is definitely not unprecedented. There have been two periods in the last quarter century that had a longer streak, including the period between October of 1990 and October of 1997. During that 7 year period, the streak without a correction got all the way to 2,553 days before finally losing steam. More recently we saw a streak of 1,673 days (twice as long as our current distance from a 10% drop) between March 2003 and October 2007. Over those periods, returns were 232% and 95% respectively; taking money off the table in mid-1993 or early-2005 would have been a serious drag on returns versus the market. It’s worth pointing out that the only other 21st Century run as long as the current one without a streak was also an entire bull market cycle. If we were to see a streak as long as the early 2000s bull market, we would be 5 months into the first term of President Obama’s successor. A run as long as the mid-90s bull streak would put us at October 14th, 2018…more than a decade removed from Lehman Brothers’ bankruptcy. If returns were to hold out in the same pattern as the 90s streak, the S&P will be at an impressive 2,558. Of course, that outcome is not particularly likely. In order to put the current streak in context, the below chart shows the length of streaks without a 10% correction dating back to 1928.
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World shares tumbled towards their worst month in almost two years on Friday as turbulence engulfed emerging markets.
European and U.S. markets were unable to fight the flow with Europe’s main stock indexes suffering another torrid day and Wall Street opening down 1 percent on course for a second successive week of falls.
U.S. Economic sentiment data was due later after a flurry of employment benefits and inflation figures, but it was the resumption of intense selling of vulnerable emerging markets that remained the focus.
….more HERE
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