Intraday Market Thoughts

Will FOMC Inaction Hurt Metals Some More?

by Patrik Urban
Dec 13, 2011 13:08

UK inflation eases; German and Eurozone ZEW improves; Spanish auction well received; Swiss government lowers GDP and inflation forecast. Market turns to US retail sales, which IBD/TIPP economic optimism and later to FOMC rate announcement. See Ashrafs latest analysis on Gold, Silver & the technical of Gold/Silver Ratio below.

USD drops across board as risk appetite improves, courtesy of better than expected Spanish auctions. Relative strength winners are AUD, NZD and CHF. European equities show nearly 1% gains.

UK inflation pressure continues to ease as anticipated. The CPI declined to 4.8% in November from 5.0% in October while the core CPI declined to 3.2% from 3.4%. The decline is attributed to lower price of food, petrol and clothing. The reaction on GBPUSD was minimal as the result was in line with expectations.

The pressure on the euro may ease in the short term as positive surprises regarding sentiment were released. German ZEW economic sentiment printed -53.8 in December, slightly better than November's -55.2 while its Eurozone's counterpart showed -54.1 from previous -59.1. EURUSD currently trades firmly above 1.32.

Spanish bond auction was well received, further underpinning the Euro. Spain sold EUR 3.44 bln in 12 months bills at 4.05% with bid to cover at 3.1 and additional EUR 1.5 bln of 18 months bills at 4.226% with bid to cover at 5.0. As a consequence, Spanish-German 10 year spread paired back widening seen earlier during the session and it currently stands around 409 bps.

The Swiss government lowered its forecast for 2012 GDP growth to 0.5% from 0.9% and sees deflation reaching -0.3% from previous projection of an inflation of +0.3%. Growth should reach 1.9% in 2013. On a positive note, if the Eurozone crisis does not worsen, it is projected that the downturn is expected to be relatively short. Considering the projected deflation and recent SNB comments that the Franc is still overvalued, the rumors that the SNB will increase the EURCHF peg on Thursday gained credibility.

The US session starts at 8:30 am ET with November retail sales that are seen higher at 0.6% from previous 0.5%. However, core sales are expected to decline to 0.5% from previous 0.6%.

IBD/TIPP economic optimism index due at 10:00 am is anticipated to rise to 42.6 in December from previous 40.6.

The key event will come at 2:15 pm ET when the FOMC delivers its statement. The fed funds rate will remain below 0.25%. Given the recent improvements in US data, mainly lower unemployment rate, the FED is unlikely to hint new easing measures and will instead adopt the wait and see approach.

See Ashrafs latest analysis on GOLD, SILVER & GOLD/SILVER Ratio Technicals here:


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