World Economy Is Fragile - Gold Continues To Surge
By David Pappas, Archer Financial Services
The financial problems in Europe are making their way to the U.S. markets. Just take at look at the chart below.
September S&P 500 Futures - Daily
Chart provided by APEX
Monday looked like a "Black Monday" to some stock index traders as the German DAX was down well over 5% at one point. The FTSE was down 2.2% and shares of European banks hit a 29-month low. Two hours before the opening bell, during overnight Globex trading on Labor Day, September 5, S&P 500 futures were trading 2.1% lower and the Dow Jones futures were about 2.3% lower. There was news that Greek credit swaps surged by 240 basis points to a record 3,045 basis points, according to CMA prices for credit-default swaps. This indicates there is a 91% probability of a default.
There was another disappointing unemployment report. The U.S. Bureau of Labor Statistics reported July nonfarm payrolls showed a zero increase, which compares to an estimate of a 68,000 advance. This is the weakest report since September 2010. Some of the weakness in the nonfarm payroll report was attributed to the strike by approximately 45,000 Verizon Communications employees. Private payrolls increased by 17,000, when a 95,000 increase was anticipated. The unemployment portion of the report was 9.1%, as expected. The unemployment rate is calculated from a separate survey of households.
Employment in most major industries showed very little change over the month. The health care industry continued to add jobs. Government employment continued to trend down, in spite of the return of workers from a partial government shutdown in Minnesota. The Bureau of Labor Statistics said, "The number of unemployed persons, at 14.0 million, was essentially unchanged in August. Among the major worker groups, the unemployment rates for adult men (8.9 percent), adult women (8.0 percent), teenagers (25.4 percent), whites (8.0 percent), blacks (16.7 percent), and Hispanics (11.3 percent) showed little or no change in August. The jobless rate for Asians was 7.1 percent, not seasonally adjusted. The number of long-term unemployed (those jobless for 27 weeks and over) was about unchanged at 6.0 million in August and accounted for 42.9 percent of the unemployed. The labor force rose to 153.6 million in August. Both the civilian labor force participation rate, at 64.0 percent, and the employment-population ratio, at 58.2 percent, were little changed."
Recently Fitch Ratings warned of possible downgrades for China and Japan. Fitch indicated they could downgrade China's credit rating within 2 years, as the country's banks struggle with debt loads. Fitch said Japan, which is weighed down by a public debt load that is twice the size of the $5 trillion economy, is faced with a greater-than-even probability of a downgrade, which in part, is due to a political impasse that is stalling plans to clean up the nation's finances.
Asia's two biggest economies are in the ratings company's crosshairs, alongside Europe and the United States, as they deal with massive debts that continued to increase during the global financial crisis.
With all the negative news in the world, many are investing in gold futures in a flight to quality move. December Gold futures recently traded above the $1900 an ounce level on Monday since the last peak two weeks ago.
December Gold Futures - Daily
Chart provided by APEX
With the world economy remaining on shaky grounds, the global financial system seems to be worsening and may continue to do so until a solution is found. There are many factors halting U.S. growth, while we continue to hear more negative economic news from Europe and Asia. This is causing many to believe the world global system remains extremely fragile.
If you would like additional information about the financial markets, please contact Dave at david.pappas@archerfinancials.com or at 1.877.872.3348.
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