This past 5-day trading session started off with a bang but eventually calmed down by the time the week came to a conclusion. Precious metals bounced all over the place but if you look over the course of the past 7 days a clear downtrend shows up for both gold and silver. Clearly, though we were tricked towards the end of last week, market conditions are not in a hurry to change and remain as stacked up against gold and silver as ever.
The headline-grabbing stories this week generally came from one of two place—the United States or China. The week began with a heavy focus on China, but the conclusion of the week saw investor attention once again shift to the US, as September lies in wait just around the corner.
Chinese Stocks Slide, Rates Slashed
During the ending stages of last week and the early parts of this 5-day trading session, Chinese stocks plummeted. There began a major sell-off on Monday of this week, and quickly China’s main stock index had lost more than 5% of its value. Thanks to the US and Chinese economies being so closely linked, Monday’s sell-off caused US stocks to come tumbling down as well. This made investors focus on the fact that, since reaching record highs a few months ago, US stock indexes have more or less steadily trended downwards. While some point to a struggling US economy, many more point to China’s current state of stagnation.
In response to the most recent bout of economic and financial turmoil, China decided to slash interest rates for the fifth time in less than a year. This move, though it took the market by surprise, makes strategic sense as the Chinese government is clearly trying to pump more money into the beleaguered economy without resorting to simply printing more yuan.
Thanks to China’s most recent policy change, the market then began wondering what this might mean for raised interest rates in the US come September. Almost immediately, a sense of doubt came over the entire global marketplace as investors were curious as to whether the US can survive the current global economic climate if interest rates are progressively raised. As recently as Thursday, New York Fed President William Dudley commented on the potential for raised interest rates in September by saying that such increased rates seem less likely than they did a few weeks ago. For this reason, you can expect the interest rate speculation across the US and global markets to pick up quite a bit in the coming days and weeks.
US GDP Revised Upward
Though we aren’t entirely finished with the first three quarters of the year, the US has already been dealt some fairly bleak GDP readings. From the first quarter, a harsh winter battered the economy so much so that only a little more than .5% growth was recorded. Then in the 2nd quarter, some recovery was seen and investors were content to see more than 2% growth.
Today, however, the outlook on US economic growth thus far this year took a nice tick upward thanks to a revision to the 2nd quarter GDP data which now shows that the US economy grew by more than 3.5%. This sizeable revision helped encourage investors that the US economy is, in fact, doing well. Thanks to this, stocks and the Dollar finished out the week strongly.
As we look ahead to next week, it goes without saying that the speculation regarding raised interest rates will most definitely pick up. September has long been slated as the month during which interest rates would be raised, so I would be shocked to see much of anything else on the minds of investors. As for next week, it is looking like things will be generally quiet save for the unexpected market upheaval and/or some August economic data.