Precious Metals Surge on Weaker Dollar

Daily Analysis - 20/04/2016

US Dollar Slids, Gold and Silver Post Strong Gains


Gold prices surged 1.64% yesterday, but the biggest gains came from silver, which rallied 4.47% for the day and is currently trading near an 11-month high. The gains in the metals came in response to a drop in the dollar following negative data on US housing construction in March. Another factor strengthening the price of gold and silver was the news that China launched a yuan-denominated gold price fix to compete with the London based price fix. Eighteen institutions have joined the Chinese benchmark fixing, which so far was dominated by the London Bullion Market Association.

Eurozone Current Account Surplus Fell in February

The current account surplus in the eurozone for the month of February fell sharply, accordingly to data released by the European Central Bank on Tuesday. The eurozone's current account balance which is a measure of the financial position of the economy on a global standing showed a surplus of 19.0 billion euros for the month, down from a revised 27.5 billion euros in January. The surplus in goods fell to 24.6 billion from 30.4 billion in January while the services surplus increased to 6.8 billion from 3.8 billion euros previously. The primary income surplus fell to 1.4 billion euros, down from 3.2 billion in January. In the twelve months up until February, the current account surplus represented 3.10% of the eurozone's GDP compared to 2.70% previously.


German & Eurozone Economic Optimism Rise in April

Data released by ZEW, showed that businesses expect to see improved sentiment in April, for both Germany and the Eurozone. According to ZEW, economic expectations rose to 11.2 from 4.2 in March, beating forecasts of 9 and rising to a 4-month high. The rise in economic sentiment came on the heels of surprisingly positive news from China last week, lifting sentiment among German exporters. However, concerns about the upcoming UK referendum on its EU membership “Brexit” remains a near term issue weighing on sentiment. Bearing this in mind, the ZEW's measure of economic conditions fell to 47.7 for the third consecutive month. The economic confidence index for the Eurozone increased to 21.5 in April.


US Housing Data Slumped in March

US economic data in the housing sector disappointed. Housing starts decreased by 8.80% in March, falling to a seasonally adjusted 1.089 million units per year, missing analysts’ expectations by a strong margin. US building permits, which is a forward looking indicator showing the number of permits issued for new construction, also declined, falling 7.70% in March, to a seasonally adjusted 1.086 million units per year. Building permits fell largely due to a drop in multi-family units which fell by 18.60%. Both the housing starts and building permits indicated a slower pace of growth in the US housing and construction sectors. Last year, the US housing sector posted strong gains and was responsible for pushing US GDP higher. The current set of data, although subject to revisions in the future, points to weak Q1 GDP growth in the US. Earlier this week, US homebuilder sentiment fell to 58, falling for the third consecutive month, indicating a slowdown in the housing sector.


UK March Jobs Report Expected to Show Stagnation

The monthly labor market data from the UK is due for release today at 09:30 GMT. Analysts are forecasting that the UK's jobless rate will remain steady at 5.10% in the three months to February, while the jobless claims change is forecasted to show a drop of 11.9k in jobseekers' allowance, a continued decline from previous month's 18k. Productivity, in terms of wage growth, is however expected to stay unchanged, at 2.10%, the same as the previous month. Earlier this month the Bank of England cited elevated levels of downside risk in the UK's labor market outlook due to a slowdown in GDP growth and investments ahead of the EU “Brexit” referendum.


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