Silver prices surge near 2-year high; Stocks' recovery faces test

Summary:

• Silver surges over 2% to move above $18

• Recovery seen in equities faces test

• DE30: Axel Springer to leave MDAX index

• Germany teetering on the brink of recession

• Pound looks to gain; Brexit headlines dominate

Silver prices are soaring today by 2.0% and reaching the highest level since September 2017 above $18.00 per ounce. Precious metals are big winners amid uncertainty that pushes bond yields worldwide and reduces alternative cost of holding those assets. While gold has made many headlines, silver prices have soared by 25% since the end of May.  

There were further signs of recovery in US stock futures ahead of the opening bell on Wall Street this afternoon with the major benchmarks all starting in the green. Monday’s session saw the markets manage to post a higher close after Friday’s carnage where a tweetstorm from US president Trump spooked investors. Things looked like they could take a turn for the worse over the weekend with further inflammatory remarks from Trump, but after dropping to news lows on the globex open the market managed to end around 1% higher than where it was last week. However, these gains have been erased as the afternoon wore on and the S&P500 is now trading back in the red. 

In Europe the DE30 was trading firmly higher earlier on, but this market has faded too. The question now is whether this selling gains traction going forward or whether it is just a pullback in a larger recovery. The price action into the US closing bell could prove key.   The Deutsche Boerse (DBK.DE) announced changes to the main German stock market indices. Following an idea of taking Axel Springer (SPR.DE) private, the German stock exchange operator decided to remove the media company from the MDAX index. Cancom, IT service management company, will fill in the vacancy. Apart from that, Instone Real Estate stock will be added to the small-cap SDAX index.

The main story this morning is the release of the final GDP print for the 2nd quarter from Germany which showed a negative reading for the 2nd time in the last 4 quarterly releases. These two contractions are the only sub-zero prints in the past 5 years and clearly show that Europe’s largest economy is slowing down and perhaps about to go into reverse. Looking at a breakdown of the figures it’s readily apparent that the slowdown as come due to external factors with exports showing their largest drop in 6 years which has more than outweighed a pick-up in domestic consumption. This could be seen to suggest broader issues for the global economy and reaffirms the notion that has been gaining credence of late that we’re in the midst of a worldwide slowdown in economic activity.     

There’s been a fairly broad move higher in the pound as the currency seeks to build on its recent attempts at a recovery. The most likely cause of the buying are comments from Labour’s Keir Starmer, who suggests putting legislation in place to stop a no-deal Brexit as opposed to pursuing a vote of no-confidence in the government. This suggestion may well be the best approach to halt a no-deal Brexit as there’s still a fair chance that a no-confidence vote would fail and therefore further embolden the government in their current stance. Lawmakers remain on their summer recess before returning next week and time is becoming very much of the essence for MPs who want to block a no-deal Brexit with the October 31st deadline looming ever larger.