1. Market volatility remains elevated as tensions between Ukraine and Russia escalated into actual shots being fired this week. Inflation data continues to suggest that prices are not going to come down any time in the near future. The upcoming week will be a shortened trading week in the U.S. due to the President’s Day holiday on Monday.
2. For the week ending February 12, the seasonally adjusted number of Americans filing initial claims for unemployment increased by 23,000 from the previous week’s revised level to reach a new level of 248,000. The previous week’s level was revised higher by 2,000 claims. The 4-week moving average of claims was 243,250, a decrease of 10,500 from the previous week’s revised moving average. The previous week’s moving average was revised higher by 500 claims.
3. Yet another U.S. government shutdown was looming again this week, but the Senate managed to pass a short-term government spending bill to avert it, sending it to President Joe Biden’s desk for signature prior to the Friday, February 18 deadline. It seems that the Democrat-controlled Senate desperately wants to avoid a government shutdown during a mid-term election year. The measure, which passed by a 65-27 vote in the Senate, will keep the government running only through March 11. Lawmakers are hoping to negotiate enough spending details to draft and approve legislation that will keep the government running through September 30 prior to the new March 11 deadline.
4. While U.S. wages are rising, it appears that they are not rising fast enough to keep up with inflation and the increased cost of living that has resulted from it. According to the U.S. Department of Labor, inflation has eroded the paychecks of average Americans by 1.7% over the past year. According to a recent survey of more than 3,000 adults from LendingClub, at the end of 2021, 61% of Americans were living paycheck to paycheck. Even among those Americans that were earning a salary of at least 6 figures, 42% said that they were also living paycheck to paycheck.
5. U.S. homebuilder confidence is plummeting as lumber prices grow higher and lead times grow longer for things like cabinets, garage doors and appliances. Residential construction costs in the U.S. are up 21% year over year and the disruptions that continue to plague the supply chain have affected delivery times for crucial items required for home construction. Jerry Konter, chairman of the National Association of Homebuilders, said “Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances. These delivery delays are raising construction costs and pricing prospective buyers out of the market.” Lumber costs are so high now that builders are having to add tens of thousands of dollars to their cost estimates in some cases, just to cover the material cost increase.
6. The average size of a new home mortgage in the U.S. has now moved to record levels, jumping to $453,000 as home buyers face one of the priciest housing markets in history. Demand for homes continues to outstrip supply and “bidding wars” have become commonplace, driving prices even higher. Applications for refinancing a home loan are also less than half their volume from just a year ago as interest rates have already begun to rise in advance of any movement on rates by the Federal Reserve. Even renters are facing massive price surges, with rents up as much as over 30% in some cities.
7. On Wednesday the Federal Reserve released the minutes of its last Federal Open Market Committee (FOMC) meeting. The minutes showed that the central bank was preparing to raise interest rates as expected, and to also reduce its current balance sheet, which could potentially mean selling off some of its mortgage-backed Securities. In an accompanying note the Fed said, “Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate.”
8. The Dow Jones Industrial Average saw its worst day of the year on Thursday as tensions between Russia and Ukraine continued to escalate. Ukraine accused Russian-backed separatists of shelling a civilian village and the U.S. noted that, in spite of official Russian announcements to the contrary, Russia had actually added troops to the Ukrainian border instead of withdrawing troops. U.S. Secretary of State Antony Blinken warned a U.N. Security Council meeting on Thursday that Russia intends to “manufacture a pretext for its attack” on Ukraine.
9. China has thus far remained silent on its opinion over what is happening between Russia and Ukraine, but it is likely watching the unfolding events with keen interest. China has repeatedly let the world know that it considers Taiwan nothing more than a rogue province of mainland China and not the democratic, self-governing island nation that Taiwan claims to be. If Russia successfully invades Ukraine without receiving anything other than threats of “severe costs” from the U.S. and its Western allies, China may decide that the time has come for Taiwan to be “returned to the fold” of the mainland – by force, if necessary.
10. Despite taking a back seat to events that are occurring in Ukraine, the protests in Canada took a dramatic turn this week. Amid reports of financial institutions already having seized accounts containing money, which was donated to the protest efforts, Canadian prime minister Justin Trudeau activated emergency powers in an effort to further rein in the protests. Under the Emergencies Act, the government increased its overreach even beyond those rules and restrictions it had already made in its efforts to attempt to curtail the spread of Covid across the nation. The new measures bring crowdfunding platforms such as GoFundMe and GiveSendGo under government terror-finance oversight, authorizing Canadian banks to freeze accounts suspected of funding the protests and to suspend insurance on any vehicles and/or trucks involved in the protests. The measurers even allow the government to seize the bank accounts of any truck drivers that it deems were involved in the protests. Parliament must approve the use of the emergency measures within seven days, which appears likely to happen. Trudeau claims that the measures would be “geographically targeted and time limited” but that remains to be seen. By Friday, acting under the new emergency measures, Ottawa police had begun arresting protesters and towing away trucks.
11. Despite the escalation of tensions between Ukraine and Russia, oil appeared headed for its first weekly fall in over 8 weeks. Rumors that oil from Iran may be coming back into the market as it contemplates returning to adherence to the 2015 nuclear agreement with world powers sent prices lower, even though the deal currently under discussion does not include a lifting of current oil sanctions. The conflict between Russia and Ukraine will likely continue to put a cap on any further losses in oil prices, especially if that conflict escalates further and eventually leads to supply disruptions in Europe. Brent crude futures settled at $93.54 per barrel while West Texas Intermediate futures settled at $91.07 per barrel.
12. The euro dipped slightly lower, then immediately bounced to the upside at the start of trading this week. The euro’s momentum did not last and by early morning Monday, the euro had headed lower, touching its lows for the week late in the day on Monday. After touching its lows, the euro reversed course, and had marched its way back into positive territory by late Tuesday. The euro dipped shallowly lower overnight on Tuesday but had returned to positive territory by Wednesday morning. The euro moved mainly sideways through much of Wednesday but began Thursday trading dipping back into negative territory again. The euro bounced along near its opening levels for the week throughout Thursday, but by the time market close came on Friday, had returned to the negative. The euro drifted lower through market close and will finish out the week to the downside against the U.S. dollar.
13. The Japanese yen dipped against the U.S. dollar at the start of trading this week, but quickly turned positive overnight. The yen continued its positive moves through mid-day Monday, but then began a trend that took it shallowly lower, touching its lows for the week late in the day on Tuesday. The yen continued its move slightly lower through Wednesday until mid-day, when it suddenly began a move back to the upside again. The yen touched its highs for the week in early trading on Friday, dipped slightly and then rebounded slightly again just before market close. The yen will finish out the week slightly to the upside against the U.S. dollar.
The growing tensions between Russia and Ukraine remain the primary concern for markets in the coming weeks. Reports of shelling by Russian-backed separatists in a civilian village in Ukraine’s Donetsk region emerged this week as Western nations continued to scramble to try to find a diplomatic solution to the growing conflict. Other cease-fire violations were reported by both sides on the conflict on Friday and U.S. intelligence agencies formally blamed Russia for a series of cyberattacks on Ukraine that occurred this week targeting the nation’s military and defense agencies, in addition to two of the nation’s major banks. Anne Neuberger, the deputy national security advisor for cyber & emerging technology at the White House said, “We believe that the Russian government is responsible for the wide scale cyber attacks on Ukrainian banks this week.” Referring to Russia’s main intelligence directorate, the GRU, Neuberger said “GRU infrastructure was seen transmitting high volumes of communication to Ukraine-based IP addresses and domains.” When asked if this was possibly a prelude to an invasion, she said, “This recent spate of cyber attacks in Ukraine are consistent with what a Russian effort could look like.” Earlier in the week, U.S. President Joe Biden reiterated that the U.S. would act in the event of an invasion, saying “Make no mistake, the United States will defend every inch of NATO territory with the full force of American power. An attack against one NATO country is an attack against all of us.” It is worth noting that Biden’s words are essentially meaningless, as Ukraine is not a NATO member. Ukraine does border four other NATO member countries however, which could mean that the U.S. would be justified in moving if any of these nations were to feel threatened by Russia’s actions in Ukraine.
The oil market remains in a state of flux due to the growing tensions in eastern Europe as well. Despite progress in talks between world leaders on bringing Iran back to the table over adhering to the 2015 nuclear agreement, which has the possibility to eventually lead to sanctions being lifted on Iran’s ability to export its oil, the initial details of any cooperation do not include the lifting of those sanctions in the near term. It seemed that oil traders jumped the gun this week, sending prices lower on hopes that Iranian oil entering the market could alleviate supply constraints despite a potential disruption in supply if Russia and Ukraine truly come to blows. As it became apparent that Iranian oil would not be returning to the market any time soon, oil prices steadied once more and look as if they will continue to see support, if not further gains, on continued fears over European supply disruptions due to the growing tensions with Russia.
It appeared that the “flight to safety” trade was in full force this week as investors exited equities and looked for alternate investment sectors that might see less impact were a full-blown conflict to erupt in eastern Europe between Russia and Ukraine. Many U.S. traders, fearful of leaving their investment capital at risk over a long weekend, appeared to step to the sidelines, selling off equities and either sheltering in cash, or shifting to alternative investments such as precious metals or cryptocurrencies. An ongoing surge in inflationary indicators is also adding to the fears of a potential conflict between Russia and Ukraine.
In the U.S., the Department of Labor reported that while American wages appear to be rising, they are not rising faster than the cost of living. Even small businesses are finally throwing in the proverbial towel and have begun passing their cost increases on to their main street customers. The Federal Reserve, in its meeting minutes for the last FOMC meeting, acknowledged that inflation may not respond to its initial attempts to curtail it and noted that it may have to be more aggressive in its efforts to both raise rates and trim the size of its balance sheet. Many investors, seeing the increase in geopolitical tensions, surging inflation, and continued unrest over the way in which world governments are handling the pandemic, have continue their efforts to make sure that their investment portfolios are sufficiently diversified against such concerns. Many of these investors have continued to follow their plan of accumulating physical precious metals as part of their diversification strategy whenever temporary price dips allow them to do so at a relative discount.
Physical precious metals have a long and storied history of being viewed as hedges against times of economic and geopolitical uncertainty. It is imperative, however, to remember that the key to profitability through the ownership of physical precious metals is to acquire the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.
Trading Department – Precious Metals International, Ltd.
Friday to Friday Close (New York Closing Prices)
|Feb. 11, 2022||Feb. 18, 2022||Net Change|
Previous year Comparisons
|Feb. 19, 2021||Feb. 18, 2022||Net Change|
Here are your Short Term Support and Resistance Levels for the upcoming week.