The metals markets have had to withstand considerable stress by economic data leased around the middle of last week. But these are likely to be distorted vigorously through the hard and long winter in the northern hemisphere. In the coming months, there should be a correction, which would positive for the metals markets. The example of Greece has shown in the previous week, how little the information-efficient markets are, contrary to the theory of rational expectations. It would take some considerable time before the crisis has endured. Hence the fear of a Greek state bankruptcy remains in the spotlight and contagion to other countries in the euro zone stays on the agenda. For the metals markets, this means that a weaker euro could further weigh on prices.
The metals markets have already turned into the red at the beginning of the trading week. But they came under huge pressure with the publication of two economic figures before they could recover towards the weekend. In Germany, the ifo index of business climate fell surprisingly from 95.8 to 95.2, while the consensus among economists was looking for a slight increase to 96.2. This decrease was caused by a marked deterioration in current business conditions from 91.2 to 89.8. The key here was the retail sector, which suffered strongly due to weather conditions. However, for the further development of business activities, the business expectations are more likely to be of importance. These have continued to improve and have increased from 100.6 to 100.9. With the start of the spring, thus, the situation should improve in the retail sector and should also improve further in other sectors of the economy. In addition, the weaker euro is helping the German export industry, which also does not argue for an economic downturn, even if the GDP growth in 1st Quarter could well again stagnate.
The second negative factor for the metals markets came just hours after the publication of the Ifo index with the release of U.S. consumer confidence. Although even the consensus had expected a slight decrease, but did not calculate with a massive drop from 56.5 to 46.0. Consumer confidence suffered from the development of the labor market in particular. But even here, the weather plays a role, as was also acknowledged by Fed Chairman Bernanke in testimony before the U.S. Congress. With the end of the winter season, the situation could improve again. In addition, it must be remembered that the plunge of consumer confidence needs not necessarily lead to a massive drop in consumer spending. Even for the significantly lower than expected sales figures of the housing market, the weather played a role. But it remains to be seen, whether the situation improves again. For the copper demand, however, building permits and housing starts should be the more significant factors.
These economic data have not only led to falling prices in the stock markets, but also to declining prices for crude oil and declining yields 10yr. U.S. Treasury Notes. These figures were negative for the metals markets. In the gold market, it is often argued that lower yields reduce the opportunity cost. However, they also reflect a worsening of economic assessment, and thus diminishing inflation risks. Therefore, this is negative for gold. Thus also the precious metals could not escape the influence of the worse-than-expected economic data.
Greece came under renewed pressure and the CDS rates and the yield spreads on government bonds have once again widened. This was triggered by the rating agencies. But have only affirmed old positions and thus repeated long familiar-looking statements. The markets are not information-efficient, but behave like somebody watching repeatedly a scary move and gets again shocked every time. The market initially waits for Greece to launch a 10yr. government bond. But even with a successful placement, Greece remains on the agenda. Only when the government shows highly visible successes, reducing the budget deficit to GDP ratio in line with promises made, the situation might ease. Until then, however, the euro versus the U.S. dollar stays vulnerable. Therefore, the euro could remain a burden on the metals markets.
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