Daily Agenda: European Bond Markets On Alert

OPEC predicts U.S. oil production will decline this year; Bernanke goes hedgie; New York State announces settlement with Lehman.


European debt markets are sending signals that investors are once again recalibrating risk factors. Yield on German 30-year Bunds fell to 0.468 percent while ten-year government debt reached 0.088 percent. With European Central Bank president Mario Draghi’s reassurance yesterday that the bank’s €1 trillion ($1.07 trillion) bond purchase facility would remain in motion, the sole dark cloud for euro-denominated markets is Greece.

It’s pretty much a certainty is certain that the prospects of a “Grexit,” or a Greek exit from the euro, will come up in discussions this week as the IMF, World Bank and finance ministers of the Group of 20 meet in Washington.

EU leaders have signaled exasperation on the Greece front. Yesterday German Finance minister Wolfgang Schaeuble repeated his call for Athens to be more realistic with Greek voters. Regardless of the likelihood of a Greek default, for now, risk-averse investors appear anxious to snap up high-credit-rated debt that yields more than the 0.2 percent threshold to qualify for ECB purchases, suggesting that long-term European government bonds may remain near historic highs for quite some time.

OPEC predicts end to oil boom. In its regular monthly market report, the Organization of the Petroleum Exporting Countries predicted that U.S. and Canadian oil production would begin to taper in the second half of 2015, as more rig capacity goes offline on the back of low crude prices. OPEC predicts demand for its crude supplies will increase modestly as a result.

Citadel recruits Bernanke. Today it was announced that Former Federal Reserve Chair Ben Bernanke will join Chicago hedge fund firm Citadel Investment Group as a senior adviser. In addition to advising the firm’s fund managers and analysts on macroeconomic issues, Bernanke will meet with clients and prospective investors.

Lehman settlement announced. The office of New York Attorney General Eric Schneiderman announced yesterday that the state had reached a settlement with accounting firm Ernst & Young over its role in the collapse of Lehman Brothers Holdings in 2008. The firm will pay the state $10 million over charges that it helped Lehman hide key information from investors while acting as auditor.

U.S. jobless claims exceed consensus. Weekly initial jobless claims data released this morning by the U.S. Department of Labor came in at a much higher than expected 294,000. The number of newly jobless in the release a week ago came in at 281,000, less than anticipated and near multi month lows.

Financial-sector giants report earnings. BlackRock, the world’s largest asset management firm, reported an 8.7 percent boost in profits during the first quarter of 2015, driven by fresh inflows. Investment bank Goldman Sachs Group beat analyst expectations by a wide margin, posting first-quarter 2015 earnings of $6 per share. The firm’s equities division in particular showed strong performance during the first three months of the year. Citigroup‘s earnings for the period also beat estimates at $1.51 per share, as the financial institution continues to sort through legal and restructuring costs. Private equity stalwart Blackstone Group posted first-quarter earnings that nearly doubled year-on-year; the firm’s assets under management swelled to $300 billion. American Express is reporting results after the close of equity markets in New York.

Portfolio Perspective: What’s Next for Gold PricesMartin Murenbeeld, Dundee Capital Markets

The U.S. dollar represents the obvious major near-term headwind for gold. The good news is that most of the dollar’s rise is likely behind us, and the whole world must by now be aware of the fact that the Federal Reserve is anxious to commence rate normalization lift-off. This awareness means that much of the Fed’s initial hikes are more or less fully discounted by the gold market — and currency markets.

On the bullish side, near-term support for gold is most likely to come out of geopolitical factors. Some — George Soros, for one — have suggested that the probability of a Grexit has risen to 50 percent. And the recent descent of Yemen into total chaos, which has encouraged a Saudi coalition to send troops to the Yemen border, is only one small facet of the geopolitical crisis that has gripped much of the world. Even if such crises do not encourage immediate flight into gold, they all require money which some central bank will inevitably have to print.

The dollar ostensibly could suddenly roll over. We at Dundee Capital Markets think a dollar decline is more a medium to long-term factor, however. Demand in Asia will continue to rise as ongoing concern over keeping reserves in hard currency will not go away. Central banks in Asia and elsewhere will also remain buyers of gold.

There is a brewing global debt crisis that will weigh on monetary policy everywhere. Ongoing economic expansion in China and India, where gold is a traditional store of wealth, means that the region will show rising demand for the yellow metal far into the future.

Models suggest the gold price in 2015 will remain fairly flat, with a slight upward bias. We stress, however that this does not include any allowances for any financial or geopolitical crises that may come up in the near to long term.

Martin Murenbeeld is the chief economist at Dundee Capital Markets in Vancouver.