By Carlos Guillen
It is simply amazing how equity markets are continuing to climb to record highs with very little breaks in between. Just last week there were three sessions in which the Dow ended the trading session at record closing levels, and today the Dow appears on track to close at yet another record high closing price. Investors appear to be ready to jump into stocks on any bit of good economic indications, and today it appears that the decline in import prices is giving investors the green light.
Import prices last month fell for the second consecutive month as costs declined for imported oil, serving to remove inflation pressures. According to the Labor Department, overall import prices dropped 0.5 percent in April, in line with the Street's consensus. Moreover, over the past 12 months import prices have been down 2.6 percent. Tepid economic growth around the globe has reduced demand for commodities, including oil, putting downward pressure on costs. While there was some concern yesterday over an article that hinted the winding down of Fed monetary easing, today the drop in import prices is serving to give investors more confidence that a winding down is not imminent as it gives the U.S. Federal Reserve an additional reason to maintain it loose monetary policy. Also on a decline were prices of U.S. exports, which dropped 0.7 percent after falling 0.5 percent the previous month.
Also encouraging here at home was that U.S. households were able to reduce their debts during the first three months of 2013. According to the Federal Reserve Bank of New York, total indebtedness fell by 1 percent from the previous quarter to $11.23 trillion. This is a significant improvement in relation to the $12.68 trillion peak seen in the third quarter of 2008, when the worst phase of the financial crisis took place. During the March quarter, the debt reductions were driven by declines in mortgage debt and in credit card balances, partially offset by an increase in student loan debt. Total mortgage debt was down to $7.93 trillion, from $8.03 trillion the prior quarter, while credit card balances edged down by $19 billion to $660 billion, but student loans increased by $20 billion.
At the moment equity markets are holding up steadily, with the Dow Jones Industrial Average up over 90 points or 0.6 percent. With very little to cause markets to sink for the rest of the session, the Dow is right on track to close at another record high closing price.
Gold's Triple Whammy
By David Urani
Gold prices are down approximately 4% so far this month, and for the gold bugs, they may be in the midst of a triple whammy; one that perhaps justifies last month's somewhat mysterious liquidation in the yellow metal.
As for the three trends acting against gold, firstly there's the broad movement out of safety assets and into stocks. As this broad market rally has continued in the past month, less "safe" sectors like financials and basic materials have outperformed the market while the likes of utilities and healthcare have underperformed; and in the meantime highly shorted equities (like Tesla (NASDAQ:TSLA) and Overstock (NASDAQ:OSTK)) are seeing big rallies. That same hunger for risk means reduced appetite for gold.
Secondly, we have global currency trends. In particular there is Japan's massive stimulus program centered on fierce money printing by the bank of Japan. Additionally, the ECB recently issued a rate cut of their own. That's had the effect of lifting the dollar, which of course tends to have an inverse relationship with gold.
Further lifting the dollar is the latest major theme around the trading floors of potential Federal Reserve tightening. As we've noted there's been broad speculation that at some point, perhaps relatively soon, the Fed will begin to slow down the printing press as the economy recovers.