Weekend Update February 13

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.

 

ABSTRACT: The unresolved–though perhaps improving–crises in the euro area on the Greek and Ukrainian fronts left markets uncertain, and thus volatile, this week. Besides silver, which recovered some strength, precious metals fell sharply in an up-and-down string of trading sessions. Meanwhile, equities on both sides of the Atlantic rallied toward recent highs.

GOVERNMENT & POLICY

Despite Backlash, Netanyahu To Receive Congressional “Meddle” of Honor

When it seems every news story of international concern is focused on the myriad problems plaguing Europe, the United States government now finds itself in a cross-border political controversy of an entirely different kind. The headlines in both the U.S. and Israel are being dominated by the mostly unpopular move by Republican leadership to invite Israeli Prime Minister Benjamin Netanyahu to speak to the two chambers of the legislature about the potential nuclear deal the White House is trying to strike with long-time adversary Iran.

Netanyahu’s address to Congress is scheduled for the 3rd of March, only two weeks ahead of Israeli elections–in which the prime minister’s party is in a neck-and-neck contest. The ulterior motives for the Israeli leader, who is affectionately known to some as “Bibi,” have become glaringly clear: If Netanyahu appeals to his country’s most steadfast ally to warn against the Iranian agreement currently being negotiated, it could give him and his Likud Party the nationalistic boost needed to push them over the hump in the elections.

Although a strong majority of Israeli citizens have voiced their support for Netanyahu’s positions against Iran, the media in Tel Aviv–and even the Israeli public–has been vocal about its misgivings with the impromptu congressional speech. There have been adamant calls for him to cancel the diplomatic trip, or at least to call off what promises to be a dramatic, partisan oration. Surprisingly enough, where Netanyahu presumes he will score political points with the populace, it appears he may actually be hurting his image with them.

Op-ed after op-ed in the Israeli newspapers have implored the prime minister to reconsider his decision. Although these authors repeatedly concede that they agree with Netanyahu, congratulating him on being “right,” they are insisting that the move runs the risk of souring relations between Israel and the U.S., a development the Jewish State can ill-afford, especially of its own accord. Even the Anti-Defamation League (ADL), which direct much of its efforts against antisemitism, has called the move unwise.

In matters of such international intrigue, it would seem that pragmatism outweighs nationalistic fervor for the vast majority of Israelis; some two-thirds of poll respondents at Tel Aviv University believed that the prime minister is giving the speech in order to affect the elections and his domestic political interests. The politicization of the Iran nuclear deal is having similar effects in the States, where Speaker of the House John Boehner is receiving heavy criticism for initiating the politically-motivated visit from Netanyahu. Admittedly, the pundits on the left have a point when they accuse Boehner of turning Congress into a political theater rather than a legislative body. Understandably, there are some within his own party are upset that Speaker Boehner has apparently placed a political agenda ahead of the country’s national security interests.

Though any deal between Iran and the U.S. is sure to include some unpopular compromises (on both sides), most leaders around the world acknowledge that greater diplomacy between Iran and the West is in the best interest of global peace efforts (of which Israel is at the center, and is acutely sensitive to). Yet, in both Israel and America, political leaders can find a large enough chunk of the electorate with whom this defiant, politically-charged meddling in international affairs resonates, and that is often all that is needed to tip the scales in a closely contested election, or to render a thinly veiled political strategy auspicious.

For the Republicans, this whole circus is clearly a means of exploiting the president’s lack of credibility with the American people as well as with our partners and adversaries abroad. A rift in Israeli relations coupled with a breakdown of the talks with Iran would certainly hamper President Obama’s political stretch run, during which he will seek to solidify his party’s chances of winning the White House in 2016. Even if this strategy proves a political success for the Republican Party, the ethics and long-term consequences of the move aside, the G.O.P. will still be left with quite a bit of ugly international strife to try and clean up in the aftermath.

MARKETS

Friday Rallies Cap Volatile Week

Volatility spread across nearly all markets following Wednesday’s meetings in Europe: one among the finance ministers of the respective euro area countries to discuss Greece’s debt conundrum, and another gathering of French, German, Ukrainian, and Russian leaders in Minsk, Belarus to reach a conditional ceasefire in the nearly year-long conflict in the eastern provinces of Ukraine.

These meetings moved the needle of the markets this week, as investors around the globe wisely waited for some greater clarity on the mess in Europe before acting. Activity in the stock markets was muted on Monday and Tuesday, though commodities fluctuated from one trading session to the next. Crude oil oscillated between negative reversals and bounceback recoveries, closing the week on a high note to fly in the face of some experts’ calls for $20/bbl oil in the near future. Though the results at Friday’s closing bell don’t preclude such a development, the continued suspension of shale oil operations in the U.S. should still place some upward pressure on oil prices.

Continuing the trend, silver’s volatility hit a 16-month high this week, as the argent metal fell sharply along with (though somewhat less than) the other precious metals at mid-week before rallying 50 cents on Friday alone to close near $17.40/oz. Conversely, palladium has remained remarkably steady, remaining just short of the $800 mark, while the other metals have experienced large swings of late. Gold and platinum have been getting crushed over the last several trading days, with gold sliding to four-week lows below $1,230/oz and platinum slumping to its lowest levels since Christmas, just barely above the $1,200 line.

The dollar saw some volatility as well, responding to the undulations in oil prices as well as some disappointing economic data on the domestic front. Rising jobless claims, lower retail sales, and waning consumer sentiment placed a damper on the greenback, but not the stock markets. U.S. indices began to trend upward on Wednesday afternoon and carried the momentum into Friday, which saw the S&P 500 top an all-time high above 2,090 and the Dow Jones Industrial Average nudge back above 18,000. The Nasdaq similarly rose toward its 52-week high of 4,880. The story was much the same on the international exchanges, with European shares rising across the board and Japan’s Nikkei 225 nearly keeping pace with the Dow Jones. Germany’s DAX index advanced to an all-time high, and even the Athens Stock Exchange benchmark index managed to erase the last month’s losses.

It seemed the only part of the financial sector to avoid the volatility bug was the bond market, which finally seemed to stabilize near more normal levels. After recently sinking below 1.70% (to the alarm of many investors, traders, and analysts), benchmark 10-year Treasury yields eased all the way back to 1.99% by Tuesday, remaining parked at 2.01% by week’s end.

GEOPOLITICS & WORLD EVENTS
Spotlight Remains Fixed on Europe

The situation in Europe took an ostensible turn for the better this week, as the first saplings of encouraging news came for both the Greek and Ukrainian crises.

For Greece, the patient progression of the talks among the euro zone’s finance ministers must be taken as a positive signal that all options for equitably avoiding a “Grexit” from the euro union will be exhausted before such a scenario–one that many pundits are rightly painting as the doomsday variety–comes to pass. The country is currently saddled with €320 billion of debt, or about 175% of the country’s annual GDP.

In eastern Ukraine, large-scale fighting and heavy artillery are supposed to be pulled back as part of the revival of a previous ceasefire deal reached in September. That agreement was summarily broken, as more than 5,000 lives have been lost thus far in the conflict between Russian-backed rebels and Ukrainian forces. The latest de-escalation is the result of fresh discussions between the two sides, led by diplomats from Germany and France.

In both cases, there is reason again to hope (at least for a brief moment) for an amicable resolution to the pair of economically and politically disruptive affairs. With fourth-quarter data showing GDP growth picking up in Germany and the Netherlands, the EU economy could be poised for a modest turnaround, so long as the dual crises are held in check. Though today’s signs of encouragement may prove fleeting, the fact that a “stay” or “hold” has been successfully reached in each situation reveals a certain amount of optimism and near-term stability on the part of Europe. In addition to the industrious countries of Northern Europe, both of the oft-beleaguered Iberian economies of Spain and Portugal saw surprising growth during the last quarter, as well.

Enormous concerns for the future of the euro, and the fate of the countries in the currency union, undoubtedly remain. Germany’s finance minister, Wolfgang Schäuble, has reiterated Germany’s hardline stance against a Greek bridge loan, threatening that nothing short of total acquiescence from the new Greek government will be accepted. Though this doesn’t exactly square with the tenor of the ongoing negotiations, it reveals that the potential risk built-in to the situation is still staggeringly high.

The proverbial powder keg for the EU is still precariously close to being lit; to make matters worse, the possible implications are decidedly grave on multiple fronts, involving both economic and martial discord. Admitting that the next wrong turn, whether for Greece or Ukraine, could unravel the current global economic order as we know it is far from an overstatement of the unsavory reality. For at least a few more days, however, it appears that everyone has reached the consensus to back away from the ledge.
A LOOK AHEAD: The Valentine’s Day weekend–the bane of some, a cause for celebration for others–is likely to bring another seasonal boost for consumer spending in the U.S. Next week, all U.S. markets will be closed for President’s Day on Monday.

 

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.

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