2012-JAN-13
The gold price has encountered selling resistance at $1,650, while the silver price is still being pegged below $30. Though fears about the US going to war with Iran are growing, crude oil prices slipped yesterday on news that the European Union will not embargo Iranian crude for another six months, in order to allow countries such as Greece, Italy and Spain time to source alternate supplies.The North American benchmark WTI crude is now trading at below $100 a barrel, while as of 11.15 GMT Brent crude is just above $110 – down from an intraday high of close to $115 a barrel yesterday. The Dollar Index has moved higher and is now close to 81, while the EURUSD has fallen again in trading today, with the euro now below $1.28.
Yesterday President Obama asked Congress for another $1.2 trillion in government borrowing authority; as Bloomberg notes, this is the last of the three such borrowing requests authorised by the debt ceiling legislation from August 2 last year. This will raise the federal government’s borrowing “limit” to $16.394 trillion, which the Treasury Department estimates will fund the government “until late 2012”.
So come the end of this year, we could see another replay of last summer’s debt ceiling debate – only this time set against the backdrop of a presidential election. Congress will vote to kick the can down the road and raise the debt ceiling again, as Republicans will not want to risk any scenario where the Democrats and the press blame them for jeopardising the economic status quo – even if the economic status quo resembles a car speeding towards the edge of a cliff.
No article discussing US government debt would be complete without mention of the current record-low Treasury yields. But this last week has again seen non-US investors reducing their Treasury holdings, the sixth consecutive week of such outflows, which as ZeroHedge reports now total $85 billion. This is a record amount in terms of cumulative weekly Treasury sales by non-US investors.
One swallow of course doesn’t make a summer, and in the context of a $2.5+ trillion market, $85 billion isn’t that much. If – as is eminently possible – the economic situation deteriorates in Europe and we get a full default by Greece, Portugal or some other beleaguered sovereign, then foreigners could once again come flocking back to Treasuries, rendering this recent sell-off moot. But if Europe manages to find a way to somehow muddle through (at least in the short-term) then we could see more people outside America selling Treasuries in exchange for higher-yielding assets. This sell-off could intensify as it becomes more widely publicised, as the “herd mentality” kicks in among investors.
Then things could start to get interesting.
