Turbulent start to the second half of the year

After a somewhat relaxed start of the week, which was also due to Fourth of July holiday in the US, Wednesday evening saw the markets heat up significantly. The 35 degrees Celsius predicted for Sunday should spark a similar perspiratory eruption as yesterday’s market movements likely caused among seasoned traders and investors. In addition to the June Fed meeting minutes, which quite explicitly announced further interest rate hikes, came better-than-expected US economic data.

US Treasuries at highest level since 2007

Data provider ADP reported yesterday that nearly 500,000 new private sector jobs were created in the US in June. Analysts had expected an average of only 225,000. As an early indicator for the development of the US service sector turned out substantially better than forecast by analysts, the bond markets in particular were unstoppable. Yields on two-year US government bonds, for example, climbed to 5.12 per cent, their highest level since 2007. Yields on longer-dated bonds also rose significantly, both in the US and the eurozone.

This, in turn, also somewhat boosted the US dollar – not necessarily against the euro, but against many other currencies. The fact that yesterday’s stock markets went south might have supported the gold prices due to the precious metal’s perception as a safe haven.

Gold at weekly high on Wednesday

Gold prices thus held up better than might have been expected given the high level of yields: From 1,906 US$ per ounce early last Friday, it struggled upward to a weekly high of 1,935 by Wednesday. The jump in yields, however, caused gold to drop to 1,903 yesterday. It quickly recovered to 1,910 and started trading this morning at 1,914.

For the most part, Xetra-Gold moved along the same lines, as the euro to US dollar exchange rate remained largely unchanged. From last Friday morning’s 56.40 € per gram, it reached a weekly high on Wednesday afternoon of 57.05 but went on a downward slide yesterday to 56.30. This morning, Xetra-Gold was expected to start trading at Friday’s level or slightly higher, around 56.50.

Markets await US labour market data and consumer prices

This week’s data highlight will be the US labour market report, scheduled for publication this afternoon. Will it reinforce or reverse the trends of the week? Next week, the financial markets will focus very much on June’s US consumer price data, to be released on Wednesday. 

I wish all readers a relaxing weekend – keep cool, if possible.