That Friday Feeling
March 04, 2016
Gold made it into official 'bull market' territory overnight, having moved up 20% since the December lows. Gold is a traditional store of wealth and in times of uncertainty is the go to asset. Gold is also used as a hedge against inflation and with energy prices rising and inflation in the US rising, it might be that savvy investors are taking some risk off the table in case Fed policy mistakes allow inflation to run away from them. Then there's also the election factor; quoting brokers interviewed in the Wall Street Journal “Mr Trump's candidacy makes the precious metal a smart place to hide out for the next few months“.
Former Republican nominee Mitt Romney tore into Trump in a speech yesterday, questioning just about every aspect of his life. Mr Romney has urged voters to vote tactically to try and create a 'contested convention' when they meet in mid-July to choose their nominee for the main race. Whether a man that tried and failed to get to the top spot before holds enough clout to influence the outcome remains to be seen, but we wouldn't be surprised if Trump tries to sue him!
Staying with the US, it's payrolls day today and plenty of focus will be on the number as economic momentum continues to grow and markets have pretty much recovered from their problems at the start of the year. If the Fed were basing their rate hikes solely on economic data they would have hiked again by now, but the fears in the market have held them back and investors have discounted the possibility of a hike before the end of the year – this discounting could be quickly reversed if the data today is particularly strong. We think the dollar stands to gain if its particularly poor data or if it comes out resoundingly strong (heads they win, tails you lose).
In Europe, a great story from an Italian man who still holds Lira and was unable to exchange it for euros before the deadline to do so in 2012. He has proof that he tried to do so and as such is still eligible to exchange them. Being a good citizen, he has offered to change up anybody else's Lira too and has so far has had hundreds of people take up the offer! It's estimate Italy still has more than a billion euros worth of Lira out there, money that if converted will have to come straight out of the government's pockets.
German Finance Minister Wolfgang Schaeuble made a joke and showed some emotion (immediately rubbishing two stereotypes in one sentence) when he said he would cry if the UK left Europe. Speaking next to George Osborne at a BCC event he said that Britain would still have access to the single market, but only if it continued to make financial contributions to Europe and allow free passage – which will be two linchpins of the Out campaign.
China's five year plan is laid out this weekend, giving insight into the establishment's economic priorities. There will be a tussle, we're sure, between short term economic fixes and longer term structural reform and though we think they could make great strides to solve one or the other, we think trying to do both at the same time becomes mutually exclusive.
Overnight we've seen a positive close to the week for Asia. This momentum has pushed into Europe with mining stocks pushing up on the open. Oil prices are now around $37 per barrel which is helping things. There's only tier two data from Europe this morning, so all eyes to those payrolls at lunchtime.
Have a great weekend.