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Today we are dealing with a glass half full half empty scenario. Some investors see Mr. Bernanke's letter to Representative Issa last week as an update on Bernanke's current thinking based on the present economic conditions, while others see the slight improvement in eco data from jobs to housing to consumer confidence as the nails closing the box on QE3. As hopes faded from the Jackson Hole symposium scheduled this weekend, base metals continued to remain under pressure and are presently trading down by nearly a percent at LME electronic platform.
This morning Japan has lowered its growth forecast while the state may implement a sales tax that may further weaken sentiments. Weak development from the Asians aggravated by slowing Chinese manufacturing may continue to pressurize gains in metals. Although the hopes of Chinese stimulus continue to hold in the backs of every trader's minds, and the supportive comments by the Premier, leave markets hoping, but the question is when? Cagey responses from the head of the PBoC leave this question looming ever larger.
However, better Japanese auto demand and increased production may continue to support Aluminum and Lead prices as Aluminum shipments have also increased in Japan.
As the Fed and ECB President may refrain from easing may continue to weaken the Chinese demand. Markets may witness industrial metals to mostly remain range bound in today’s session as the Chinese bourses are the major user of the metal and may impact the long term outlook.
From the EU, the German Bundesbank may continue to obstruct the ECB from using taxpayer’s money while according to the head the central bank may only continue to provide fine-tuning of monetary and fiscal policies while the Ministers need to focus on economic growth. Today Spain and Italy are likely to participate in bond market for fund-raising and any increase in the yields may further weaken base metals in the European trading. There are no major economic releases in the eurozone, however investor’s may eye the bond auction and developments of France and Greece talks. In the US today the CaseShiller home price is likely to improve along with consumer confidence and may provide slight firmness in metals.
As forecast yesterday US manufacturing is slowly improving which may support recovery in Richmond Fed manufacturing and may support gains in the US session. The markets are very much dicey ahead of the key Jackson Hole meeting.
Gold futures prices have already begun to decline, as markets seem to be shift to risk off trading and moving towards safe havens. Prices have corrected more than $10 from prior closing after reports flashed Bernanke may refrain from easing. The Euro also dragged down against the dollar as Bundesbank is strongly opposing ECB’s bond buying plan iterating exposure of potential risk to the taxpayers which could leave countries dependent on financial relief. The euro therefore is likely to stay weak for the day which may pressurize gold.
Positive data today from the US could reduce the possibility of QE3 and thus weigh on gold. Such improvement may also restrict Fed for accommodation at this moment. Delaying of the same would therefore be fatal for the riskier assets like equities while it may be a boon for gold as a safe asset.
So as I stated in the my opening, it’s a glass half full glass half empty scenario.