The Fed, China, and Friday
This morning was another day filled with economic news across the globe. Last night the important Shanghai Index sold off by over 1.30 percent as China raised its bank reserve ratio by 0.5 point. This move by the People's Bank of China(Chinese central bank) comes as the country tries to bring down its high inflation rate. India is also facing extremely high inflation as their inflation rate rose to 8.4 percent in December. Other nations such as Thailand have recently raised interest rates to to try and further cool off the high inflation levels.
The rate increases in the Asian markets are certainly one of the major catalyst for the recent sell off in gold, silver, and copper. This morning spot gold is trading lower $22.00 to $1365.00 and ounce. The highly popular SPDR Gold Shares ETF(NYSE:SPY) is trading lower by 0.89 cents to $133.15. This decline in the GLD comes after a sharp decline yesterday afternoon. Southern Copper Corp.(NYSE:SCCO) is also trading lower by just 0.6 cents to $46.31. Copper stocks all declined sharply yesterday afternoon and could be under pressure again today.
The important consumer price index(CPI) was released this morning in the United States. The CPI was 0.5 percent. The core rate was up just 0.1 percent. It is important to realize that the core CPI excludes food and energy. What else is there besides food and energy in the real world? In any case there are food riots going on around the world and this report is telling us differently. It might be time to get a better economic gauge for the economy. In any case the Federal Reserve Bank's $600 billion quantitative easing program could certainly be part of the blame for the rising food prices around the world. Well, as long as our CPI does not get too hot I'm sure they won't even notice or address it.
Next up, today is a Friday. As many of our loyal readers know by now we rarely experience a sharp decline on a Friday. This is usually because the power that be do not want a bad headline before the weekend. You see, the weekend is when most of the U.S. consumers will spend money. If the Fed's quantitative easing program is going to work for a while it will require the U.S. consumer to spend money. Please realize that consumer spending accounts for 70.0 percent of the gross domestic product(GDP) in the United States. The second reason that we rarely see a sharp Friday decline is so that the Asian markets will not panic on Sunday night when they open. You see Asia is now financing the European debt markets lately by purchasing debt from countries such as Portugal, and Spain. It's a global economy and the game of hot potato is being played by every major country at this time. As for today look for a flat trading session.