Every bit of bad news coming from Greece achieves a strike at peoples confidence in the European Union, and with it, its currency, the Euro. The Eurogroup decided that it was too late for extending the existing bailout on Greece and a threat was added to the declarations. The Greeks stance in front of its creditors must change before a future possible agreement on payments and financial rescues.
In other times, when a currency suffered an important blow on its value, most investors used to consider the precious metals as a safe option, now things have changed. With a very weak Euro against an everyday-stronger US Dollar, no one is looking for gold or other similar commodities.
With near FED’s announcements about the numbers of the domestic US production (the Nonfarm Payrolls reports and the similar other coming up next weeks), everybody is betting in the US Dollar favour.
The market is solid right now thanks to the popular Dollar but if the reports shows unfavourable numbers about the economy, may be this the opportunity for precious metals to experience the first important price gain in months.
On that issue, the FED is confident that economy is improving every day and that the numbers will be one hundred percent positive. Also they think that the Grexit event and the default happening right now will not affect in a significant way the US and its important growth. Maybe there is no over-confidence on the US numbers.
John Fox, director of research at Fenimore Asset Management in Cobleskill told to Bloomberg News the following: “Our stocks are trading at one hundred percent fair value. They’re not really over-valued but they’re not cheap. Fixed income has really struggled.”
If we study the numbers, looks like things for gold are not going to improve any time soon. US equities benchmark climbed as 3 percent at the last quarter. Also consumer confidence in June increased more than expected, thanks to an optimistic attitude from Americans about the economy growth and the health of the labor markets.
Good things are happening in those aspects: 280.000 new jobs created and an hourly earning had an important raise for the first time in several months. Domestic finances are looking good and prosper at this point. So all the “smart” players in the markets will aim the productive sector of the US economy.
The upcoming crisis for the European Union can be a window for the United States to boost their indexes’ performances. The Dollar, once again, is consolidating itself of being the most solid and safe currency available. In the meanwhile, investors feel safe with it and the gold is still out of the picture.
But other markets still suffering. The German DAX fell 8.5 percent in the quarter. This represents the biggest fall in the last couple of years. European markets are not looking better than this. The Greek crisis is creating a state of panic between investors and society in general. The Consumers Confident is dropping harder every day, especially in Germany.
As expected by many, China is not getting affected in a significant way by the Grexit event. Even the Shanghai Composite Index enjoyed a raise for the first time in four days. They have their own problems but the People’s Bank of China (PBOC) already had executed actions about it. Problems on China’s markets has affected directly the marvellous gold import, so, again, the things are not looking good.
Further in Asia we can see how Japan is feeling the Grexit. The Topix Index rebounded from an important drop during the beginning of the year to finish the quarter above the numbers by 5.7 percent. Now the Asian markets can demonstrate their solitude facing the upcoming European turbulence. The US markets are already demonstrating their strength.
Back to Europe, everything seems to be tough. The already-considered failed negotiation between Greece and its creditors is affecting all the block. The measures imposed by the International Monetary Fund have bothered and offended the Greek people. Now a referendum on Sunday will decide the short-term fate of the country.
According to the global media, the popular demand selected on Sunday will be the “No”, making everything worst for the European block. This will consolidate the idea of the Grexit. The sudden withdrawal of Greek country from the EU could entail a serious list of financial consequences for the zone and for the rest of the world. The Euro could reach an historic low, giving a win to the US Dollar but also providing the FED a headache, because their constant intention to devalue the currency and, in that way, give the US economy an important boost at exports.
With several finance trends falling can be the appropriate time for the long time expected measures by the Federal Reserve. But with an unstable situation, any risky move can be counter productive and irremediable. The American executive has to study the possible devaluation and the scenario that they are facing.