Recap: Week Ending August 30, 2013
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This past week global equity markets continued to sell off with the bulk of downside activity being seen in Europe, in particular Germany. As markets continue to move in sync the directional energy builds, pushing the market lower. The inverse correlation between US equities and the US Dollar index is strong with the index closing well into the green to mark a second week of gains. The US Treasury bond also holds a strong inverse relationship with US equities and is seen as the save haven when equities turn sour. The 30 year has fall substantially since March, however, in the past two week has gained momentum to the upside and has closed positive on both occasions. If this inverse correlation in the 30 year along the US Dollar Index continues, US markets could see much more downside. Despite news which rocked natural resources this week including both gold and silver, the Toronto Stock Exchange closed lower on the week. At this current level the TSX is roughly 200 points off its yearly highs. It must be noted that even though commodities exploded to the upside this week that the TSX did not follow through and rise along side them despite being heavy made up of commodity securities. This is a case of strong divergence and shows that possibly the pop in commodity may be shorted lived as the miners, extractors and producers are not following in sync with the move up.
Early in the week news from the US government triggered volatility across markets as it was announced that the US may enter Syria after reports of possible use of chemical weapons. The news has huge implications on two major commodities, gold and crude oil which both shot up on the news. Crude oil rose for two major reasons, Syria plays a role in the production of crude and any more violence could interpret the production of the commodity. Also, if the US is going to invade a country the demand for gasoline and oil goes up, as demand increase the supply will decrease pushing up the price. Oil peaked mid week, however, as countries such as Germany and the UK both said they would not support an invasion of Syria oil traded lower. Despite selling off light crude closed higher on the week. During the week crude hit a new multi year high of $112.24. The next upside target many are keeping their eye on is $114.83 which is the high from 2011. Like crude, gold also popped up on the news of possible violence. To many investors gold is seen as a safe haven when uncertainty in the market and global arena occur. Even though Syria is a small country, big global politics are still at play, pushing up uncertainty and the stress level of many. Like crude gold gained strength to the upside early in the week, however, as the likelihood of an invasion in Syria decreased gold sold off. During the month of August gold has seen a huge rally off of the lows that were made in the end of June. Despite the pusher higher in gold early in the week, buyers were not able to hold up and gold closed 10 cents lower on the week.
It is important to note that as of Friday President Obama said the US will not invade Syria but will negotiate. This situation is very active and it is important to follow news headlines for the latest updates.
