Stocks Rebound, Yields Fall as Fed’s Powell Soothes Market

Powell said in congressional testimony that high inflation was for goods and services tied to the reopening and the U.S. economy was “still a ways off” from levels the Fed wanted to see before tapering its stimulus support.

Powell’s remarks relieved investors who were concerned inflation data would prompt the Fed to signal the beginning of tapering, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

U.S. producer prices surged in June to the largest annual gain in more than 10-1/2 years, the Labor Department said. A day earlier, it said consumer prices rose by the most in 13 years.

“Both the CPI yesterday and the PPI today came in considerably above expectations and signaled that inflation continues to run hot,” Arone said. “Even in the face of that Powell has stood steadfast.”

The yield on the 10-year Treasury note slid 6.6 basis points to 1.3492%, the dollar eased and stocks on Wall Street rose, though gains were pared at the close of trading.

MSCI’s all-country world equity index close slightly lower, down 0.03% at 726.09, after earlier matching Tuesday’s record intra-day high of 728.77. The broad pan-European FTSEurofirst 300 index slid 0.1% to close at 1777.58, just below Tuesday’s record high.

On Wall Street, the Dow Jones Industrial Average rose 0.13%, the S&P 500 added 0.12% and the Nasdaq Composite slipped 0.22%.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.25% as Chinese blue-chips fell 1.15%. Japan’s Nikkei dipped 0.38%.

The Bank of Canada held its key overnight interest rate at a record low 0.25% as expected and said it would cut its weekly net purchases of government bonds to a target of C$2 billion ($1.6 billion) from C$3 billion.

The U.S. dollar edged lower against the Canadian dollar, down 0.01% at 1.2508 per U.S. dollar.

The New Zealand dollar shot up 0.92% as markets bet an interest rate hike is imminent after the central bank on Wednesday unexpectedly announced it would end its bond purchase program from next week.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.4% to 92.364.

The euro was up 0.5% at $1.1836, while the yen traded down 0.6% at $109.9600.

President Joe Biden’s administration is still pushing for U.S. fiscal stimulus. Late on Tuesday, Democrats on the Senate Budget Committee reached an agreement on a $3.5 trillion infrastructure investment plan they aim to include in a budget resolution to be debated this summer.

German 10-year Bund yields fell to -0.319% after Germany sold 3.392 billion euros in a top-up of its 0.00% 10-year Bund.

Oil prices dropped after Reuters reported Saudi Arabia and the United Arab Emirates had reached a compromise that should unlock a deal to boost global oil supplies as the world recovers from the coronavirus pandemic.

Brent crude fell $1.73 to settle at $74.76 a barrel. U.S. crude settled down $2.12 at $73.13 a barrel.

U.S. gold futures settled up 0.8% at $1,825 an ounce.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Herbert Lash, Additional reporting by Carolyn Cohn in London, Andrew Galbraith in Shanghai; Editing by Timothy Heritage, Mark Heinrich, David Gregorio and Marguerita Choy)

Slide in Coronavirus-Sensitive Stocks Suggests Growing Worries over Delta Variant

Declines in the shares of companies tied to the reopening trade have broadly outpaced those of other so-called value stocks, which have been battered on worries that economic growth will be slower than expected in coming months.

Shares of cruise stocks Carnival Cruise Lines and Norwegian Cruise Line Holdings have slumped 10% and 9%, respectively, in July, while American Airlines Group dropped 4% and United Airlines Holdings was off 5%. MGM Resorts International has fallen 5.5%, while Expedia Group has dropped 1.3%.

The Russell 1000 value index, which includes economically sensitive stocks, has fallen by 0.9% in the same time frame, while the S&P 500 has risen 0.5% in July.

“There is a lot of uncertainty and I think the market is trying to add up how much risk this poses to global supply chains and activity down the road,” said Steve Englander, head of North America macro strategy at Standard Chartered.

Since July 1, a basket of coronavirus-sensitive stocks tracked by Standard Chartered is down 7.3%, and off 9.4% relative to a group of tech and other stocks that outperformed during the pandemic last year.

The yield on the benchmark 10-year Treasury note has dropped about 20 basis points to 1.29% this month and was falling for an eighth straight session, marking the longest streak since a nine-session drop that ended on March 3, 2020, as the COVID-19 pandemic in the United States was gaining speed.

The availability of vaccines – including their apparent ability to keep even those infected from developing serious complications – suggests that the extent of the shutdown measures last year to control the virus will not be required.

Still, some regions, including those without as much access to vaccines, are grappling with rising cases or putting restrictions in place. Cases are rising in places such as Spain and England, although the British government plans to reopen the economy later this month.

In Australia, Sydney has had a strict stay-at-home order in force since late last month, while Japan on Thursday declared a state of emergency in Tokyo, putting restrictions in place through Aug. 22. The pullback in coronavirus-sensitive stocks likely stems in part from concerns the variant spread could restrict travel and slow growth, said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. But those stocks may have been due for a decline after such a sharp run, he said. “A lot of these stocks moved quite significantly off the vaccine news,” Todd said. “Part of this is concern about the re-emergence of this variant, but also just the fact … you are giving some back.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili, Dan Grebler and Peter Cooney)

 

Global Stocks Fall, Bonds, Euro Rise in Flight to Safety

Markets had come off of their more extreme early moves by mid-afternoon in U.S. trading, but remained lower.

Worries about knock-on effects of Beijing’s crackdown on foreign-listed Chinese firms also weighed on equities.

Bonds, meanwhile, rallied strongly as investors factored in a lower-for-longer interest rate scenario, easing expectations that reflating economies would force rates to rise through the second half of the year.

“The reflation trade is shocked but not dead,” said Jim Vogel, interest rate strategist at FHN Financial in Memphis, since rates will eventually have to rise.

“People have been persistently too optimistic because the first four months of year were just gang-busters good,” he said.

Investor optimism about the pace of recovery is being tempered after months spent overlooking some bearish economic signals. Unusual items that boosted core U.S. inflation data last month, for example, may have made inflation and growth appear more robust than it was.

Around 19:00 GMT, the Dow Jones Industrial Average was down 360.91 points, or 1.04%, to 34,320.88. The broad S&P 500 lost 41.57 points, or 0.95% to 4,316.56. The tech-focused Nasdaq Composite dropped 105.30 points, or 0.72%, to 14,559.76.

The yield on 10-year Treasury notes was down 3.5 basis points to 1.286%. It fell as low as 1.2496% earlier in the day.

Also raising concerns: political tensions in the Middle East, Russia and China that can distract the Biden administration from its domestic agenda, and lessen the focus on policies such as the infrastructure bill. Also, debate about raising the U.S. debt ceiling looms not far ahead.

Meanwhile, a reading on Thursday on the number of Americans filing new unemployment claims provided another indication that the job market recovery from the COVID-19 pandemic continues to be choppy.

The U.S. Federal Reserve on Wednesday dispelled fears of an imminent monetary policy tightening, but confirmed views that such talk could begin next month.

Shares in Europe fell about 1.8%.

The dollar index, which tracks the greenback versus a basket of six currencies, was down 0.22% at 92.436. The euro was last up 0.41%, at $1.1837.

Spot gold prices fell $4.375 or 0.24%, to $1,799.03 an ounce.

Brent crude was last up $0.82, or 1.12%, at $74.25 a barrel. U.S. crude was last up $0.87, or 1.2%, at $73.07 per barrel.

For a look at all of today’s economic events, check out our economic calendar.

(Additional reporting by Simon Jessop, Tom Westbrook, Yoruk Bahceli and Brenna Hughes-Neghaiwi; editing by Kirsten Donovan, Angus MacSwan, Barbara Lewis, William Maclean and Sonya Hepinstall)

 

 

U.S. Stocks Edge Up After Fed Minutes, Bonds Steady, Dollar Firm

At a mid-June meeting, Fed officials said substantial further progress on economic recovery “was generally seen as not having yet been met,” although participants expected progress to continue, according to the minutes.

“Various participants” at the session still felt conditions for curbing the bond-buying that is supplying markets with cash would be “met somewhat earlier than they had anticipated,” while others saw a less clear signal from incoming data, said the minutes.

“It looks like they’re setting the market up for an announcement on cutting back from this bond buying some time toward the end of the third quarter or early fourth quarter,” said Andrew Richman, senior fixed income strategist at Sterling Capital Management in Jupiter, Florida.

Stock prices and bond yields had wobbled earlier, reflecting fears that the U.S. economic recovery may be slowing, and of the spread of COVID-19 variants. Those factors clouded the view that rates may rise soon to curb inflation, though many investors in any case believe the current inflation signs are temporary.

Bond prices rose during the session, pushing yields lower. At 5:15 p.m. EDT (21:15 GMT), the yield on 10-year Treasury notes was down 4.7 basis points to 1.323%. During the session the yield dipped as low as 1.2960%.

U.S. stock prices bounced off session lows to post slight gains for the day, with the S&P 500 and tech-laden Nasdaq closing at record highs.

The Dow Jones Industrial Average rose 104.42 points, or 0.3 percent, to 34,681.79. The broad S&P 500 gained 14.59 points, or 0.34 percent, to 4,358.13.

The Nasdaq Composite added 1.42 points, or 0.01 percent, to 14,665.06.

“There’s a sense with recent economic data that even if there are some Fed members likely to look towards tapering (asset purchases), the overall policy will stay very loose and uninterrupted because we are not seeing anything indicative of ‘too hot’,” said Juan Perez, senior FX strategist at Tempus Inc in Washington.

The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.174 points or 0.19 percent, to 92.72.

Oil prices continued their recent decline. Brent crude was last down $1.13, or down 1.52 percent, at $73.40 a barrel. U.S. crude was last down $1.24, or down 1.69 percent, at $72.13 per barrel.

Gold extended gains to a sixth session, helped by the lower Treasury yields. Spot gold prices rose $6.7202 or 0.37 percent, to $1,803.41 an ounce.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Alwyn Scott; Additional reporting by Carolyn Cohn in London and Wayne Cole in Sydney; Editing by Kirsten Donovan, David Gregorio and Richard Pullin)

After Week of Mixed Signals, Stock Market Investors Betting Higher Inflation Will Be Temporary

The closes in stocks, bonds, gold and the U.S. Dollar put a cap on a week that centered on mixed signals. Not only did these markets show a mixed reaction to Friday’s PCE inflation report, but the trade was also influenced by confusing messages from Fed Chairman Jerome Powell and several Fed policymakers. The price action and the Fed comments likely left investors scratching their heads at times and feeling none-the-smarter about central bank policy since the last Federal Reserve report nearly two weeks ago.

Mixed Messages Over Inflation Fears from the Key Asset Classes

Last week, U.S. stocks closed higher, Treasury bonds finished lower (yields up), gold settled higher and the U.S. Dollar Index closed lower.

That’s quite a mixed because conventional wisdom usually steers us to believe that rising yields are good for the dollar, a bad for stocks and gold. We’re not sure it means anything yet, because it could just be signaling position-squaring ahead of Friday’s Non-Farm Payrolls report and a long U.S. holiday weekend.

Gold investors seem to be particularly confused, not necessarily by the price action, but because they seem to think the market should be rallying because Friday’s PCE inflation report showed the biggest jump in almost 30 years. What they don’t get is that one, the number was not a surprise, and two, it’s based on last month’s data, which may already be moving lower.

Treasury bonds moved lower for the week, which means yields moved up. CNBC said the 10-year U.S. Treasury yield rose on Friday “after a jump in a key data indicator of inflation.”

But CNBC also wrote that “U.S. stocks rose on Friday with the S&P 500 building its rally to records, as investors bet that higher inflation will be temporary as the economy continues to recover from the pandemic.”

CNBC also said that “Gold edged higher on Friday after stagnant U.S. consumer spending tempered bets for early monetary policy tightening by the Federal Reserve, setting bullion on track for its first weekly gain in four.”

Fed Officials May Not Be on the Same Page

Fed comments also contributed to the mixed trading results. It also started on Tuesday when U.S. Treasury yields dipped slightly as investors digested Federal Reserve Chair Jerome Powell’s bullish comments on economic recovery in a testimony to Congress. The Fed Chair also said factors pushing prices higher should retreat over time and that he expects inflation to fall back toward the central bank’s longer-run goal.

Powell’s comments seemed to go against remarks by St. Louis Fed President James Bullard who said on June 18 that he was one of the FOMC members who thinks a rate hike in 2022 would be appropriate. His comments were followed by Dallas Fed President Robert Kaplan who said Monday he is more focused on reducing the pace of bond purchases – tapering – for now, and sees the rates question as one to be answered another day.

On Wednesday, two Federal Reserve officials said that a period of high inflation in the United States could last longer than anticipated, a day after Fed Chair Powell played down rising price pressures.

Investors React Differently to PCE Index Data

We know from the PCE Index and the Consumer Price Index that there is inflation. The May reports are already stale data, which is probably why we saw a muted reaction in the financial markets on Friday.

Although the reaction was dampened, we may have seen emerging signs that stock market and gold traders are banking on diminished fears over inflation. In other words, they are siding with Federal Reserve Chair Jerome Powell’s assessment that high inflation is only “transitory”.

If there were fears of runaway inflation then the stock market would be discounting the event by moving lower.

As far as gold investors are concerned, they have to erase the old school thinking that inflation drives the market. The recent price action has shown us that gold investors are more concerned about rising interest rates than they are about inflation. What Friday’s PCE index showed us was that inflation may be under control and the Fed may not have to raise rates too quickly. In my opinion, that’s why gold strengthened.

With the latest inflation data out of the way, traders will now shift their focus to Friday’s U.S. Non-Farm Payrolls report. If inflationary fears continue to weaken then this report could set the tone of the major asset classes for the month.

The labor market has been struggling to gain traction and we may be rapidly approaching the point where the Fed actually acknowledges that millions of jobs lost during the pandemic will not be coming back.

A weak labor market coupled with peaking inflation could mean the Fed won’t have to raise rates sooner than 2023.

For a look at all of today’s economic events, check out our economic calendar.

It Seems Last Thursday’s $37 Decline in Gold Futures Was a One and Done

It was a knee-jerk reaction in response to the ADP jobs report, which came in well above expectations by economists polled by the Wall Street Journal and Dow Jones and Reuters.

Economists surveyed by the Wall Street Journal had forecasted that last week’s ADP report would indicate an increase of 680,000 new private-sector jobs were added in the month of May. The actual number came closer to a million, with the report showing that 978,000 Americans were added to the workforce in May.

Although many investors and traders believe that these high numbers could reflect the U.S. Labor Department’s jobs report that came out last Friday. However, Reuters spoke about the shortcomings of using the ADP report as a bellwether test of the upcoming Labor Department’s report.

“The ADP report overestimated private payroll gains in April’s employment report, after understating growth throughout much of the jobs recovery, which started in May 2020, leaving economists cautious about reading too much into the report.”

Reuter’s assumption was on the money as Friday’s jobs report came in over forecasts by economists polled by Reuters and the Dow Jones and Wall Street Journal, which predicted an increase of 671,000 new jobs added in May. The actual numbers were that 559,000 new jobs were added last month. This data shifted market sentiment back in the bullish camp, taking gold about $20 higher on Friday. Considering that April’s jobs report showed a tepid increase of just 266,000, the jobs report for May was a massive increase over April’s numbers but less than economists had anticipated.

The big news is that we had follow-through buying that resulted in gold futures closing above $1900 per ounce in trading today. As of 6 PM, EST gold futures are trading at $1902.10 after factoring in today’s increase of $10.10 (+0.53%). Today’s solid gain in gold can be attributed to renewed inflationary concerns, dollar weakness, lower Treasury yields, and a shift in market sentiment back to a bullish demeanor. The dollar index lost almost 2/10 of a percent today and is now back below 90 and fixed at 89.97. The 10-year Treasury Note yield is currently fixed at 1.573%.

june 7 gold

Gold recovered from Thursday’s dramatic selloff, and breaking back above $1900 on a closing basis is significant. But as we spoke about on Friday, inflationary concerns are a double-edged sword for gold investors and traders. It could prompt the Fed to begin to taper its quantitative easing policy of monthly purchases totaling 120 billion. However, it is my belief that is contrary to many analysts that believe that the Fed will begin to reduce its bond purchases sooner than later, as early as the fourth quarter of this year. While it’s most likely that interest rates will remain near zero throughout this year and 2022, once the Fed does begin to taper its asset purchases which are now well above 7 trillion, it will signal a slow and methodical change of their current monetary policy.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

Wall St Rises as Fed Officials Soothe Inflation Worries

By Shashank Nayar

Apple Inc, Amazon.com Inc and Alphabet Inc added between 0.2% and 0.5%, as the yield on the benchmark 10-year Treasury note stood at more than two-week lows of 1.557%.[US/]

Higher yields pressure valuations for tech and other growth stocks, whose future cash flows are discounted at higher rates.

Technology and consumer discretionary, among the worst performing S&P sectors this month, provided the biggest support to the benchmark S&P 500.

“Tech has amassed multiple compressions on fears that rates would have to be raised but now that inflation has been recognized as overblown, fund managers are piling back into certain sections,” said Thomas Hayes, managing member at Great Hill Capital Llc in New York.

“People are realizing that there will be a major component to inflation that will be transitory and there will be some moderate inflation that will be persistent.”

After fears of rising inflation roiled Wall Street’s main indexes earlier this month, all eyes will be on the closely watched monthly U.S. personal consumption report, the Fed’s favorite inflation gauge, due later this week.

Fed vice chair Richard Clarida downplayed the effects of higher price pressures on Tuesday, voicing faith in the central bank’s ability to engineer a “soft landing” if prices continued to escalate beyond what was expected.

With the S&P 500 sitting just about 1% away from its record high, strategists expect the benchmark index to end the year only about 2.5% above its current level as concerns over increasing inflationary risks weigh, according to a Reuters poll.

At 9:40 a.m. ET, the Dow Jones Industrial Average was up 53.58 points, or 0.16%, at 34,366.04, the S&P 500 was up 6.12 points, or 0.15%, at 4,194.25, and the Nasdaq Composite was up 55.28 points, or 0.40%, at 13,712.46.

Cryptocurrency-related stocks including those in Riot Blockchain, Marathon Patent Group and Coinbase Global rose between 5.1% and 2.2% as bitcoin climbed back above $40,000 for the first time this week.

Ford Motor Co gained 4.9% after it outlined plans to boost spending on its electrification efforts by more than a third.

Department store operator Nordstrom Inc dropped 9.5% in thin trading after reporting a bigger-than-expected quarterly loss, hurt by price markdowns.

Apparel retailer Urban Outfitters jumped 13.5% after it posted better-than-expected quarterly results and signaled accelerating sales in May.

Advancing issues outnumbered decliners by a 2.19-to-1 ratio on the NYSE and by a 2.89-to-1 ratio on the Nasdaq.

The S&P index recorded seven new 52-week highs and no new low, while the Nasdaq recorded 20 new highs and 22 new lows.

(Reporting by Shashank Nayar and Medha Singh in Bengaluru; Editing by Subhranshu Sahu)

Fed Balm Lifts Shares to Record High Amid Tussle Over Yuan

By Huw Jones

Sentiment in Europe was also underpinned by the latest IFO indicator which showed that the upswing for the German economy, Europe’s largest, is picking up pace after the knock from COVID-19.

A multi billion-euro takeover deal combining two of Germany’s biggest property developers was a focus. Vonovia slipped 4% on news it was taking over rival developer Deutsche Wohnen, whose shares surged over 15%, for about 18 billion euros.

The STOXX index of leading European shares gained 0.3% to 446.57 points after hitting a new record high of 447.01.

The mood has turned optimistic again with less concern over whether the U.S. Federal Reserve would begin tapering bond purchases, said Giles Coghlan, chief currency analyst at HYCM.

“The U.S. personal consumption data on Friday is going to be the first major test about whether the Fed is going to see inflation as transitory,” Coghlan said.

“We have this constant game of cat and mouse. At some point tapering is going to come.”

For now, James Bullard, president of the St. Louis Federal Reserve, put to rest tapering worries.

“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should do it when we’re still in the pandemic,” Bullard said on Monday.

Other Fed officials Raphael Bostic and Lael Brainard also had soothing words on inflation.

Reassurance on inflation and Bitcoin’s steadier footing after recent big losses helped to push Wall Street’s VIX “fear gauge” to below 20 on Monday, near its long-term average, Coghlan said.

U.S. stock futures, the S&P 500 e-minis, were up 0.3%, pointing to a steady open on Wall Street.

RISING YUAN

China’s major state-owned banks were seen buying U.S. dollars in a bid to curb fast yuan appreciation.

(Graphic: China’s yuan against the US dollar: https://fingfx.thomsonreuters.com/gfx/mkt/ygdvzoowapw/CN2505.png)

In Asia, the region’s main regional equity gauges climbed with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.5% at a two-week high.

“Markets were buoyed as data flow didn’t live up to the strong-inflation narrative, and amid repeated guidance from senior central bank figures that the current rise in inflation is temporary,” ANZ analysts wrote in a note.

Australian shares rose 0.9% to a two-week high. Japan’s Nikkei stock index jumped 0.6%, boosted by heavyweight local technology stocks, though gains were contained by worries of a sluggish economic recovery due to slow vaccine rollouts in the country.

Chinese stocks in particular hit a 2-1/2-month high on financial services and consumer gains. The blue-chip CSI300 index jumped 3%, while the benchmark Shanghai Composite Index advanced 2.4%, reaching their highest levels since early March. Hong Kong’s Hang Seng index rose 1.43%.

“As China’s economic recovery continues and commodities prices start to stabilise, that would help ease inflation worries and repair investor sentiment,” said Hong Hao, head of research at BoCom International.

On Monday the Dow Jones Industrial Average rose 0.54% while the S&P 500 and the tech-heavy Nasdaq Composite gained 0.99% and 1.41%, respectively.

Treasury yields, which fell on Monday after a few Fed officials affirmed their support to keep monetary policy accommodative for some time, were little changed. The yield on benchmark 10-year Treasury notes was at 1.5978%.

Digital currencies bounced back on Monday following last week’s crypto rout, regaining ground lost during a weekend selloff on news of China’s clampdown on mining and trading of cryptocurrencies.

After shedding 13% on Sunday, Bitcoin, the world’s largest cryptocurrency, was last down 0.3% at approximately $38,707.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, edged down to 89.625. The European single currency was up 0.3% on the day at $1.2252, having gained 1.72% in a month.

U.S. crude eased 0.38% to $65.81 a barrel. Brent crude fell 0.3% to $68.27 per barrel.

Gold was slightly lower. Spot gold traded at $1,880 per ounce. [GOL/]

(Reporting by Huw Jones, additional reporting by Julie Zhu, Tom Westbrook; editing by Richard Pullin, Jacqueline Wong, Philippa Fletcher)

US Stock Index Futures Inch Higher after Snapping 3-Day Losing Streak

The major U.S. stock index futures contracts are inching higher in the early trade on Friday after posting a strong recovery the previous session. Yesterday’s rally, which was led by the technology sector, broke a three-day losing streak.

At 08:12 GMT, June E-mini S&P 500 Index futures are trading 4158.75, up 4.50 or +0.11%. June E-mini Dow Jones Industrial Average futures are trading 34045, up 17 or +0.05% and June E-mini NASDAQ-100 Index is at 13513.25, up 26.75 or +0.20%.

Lower Yields Provide Some Support

Helping to boost the U.S. stock market, U.S. Treasury yields fell on Thursday as investors digested comments from the U.S. Federal Reserve, suggesting it might taper its asset purchases if the economy continues to recovery rapidly.

The yield on the benchmark 10-year Treasury note dropped roughly five basis points to 1.634% in afternoon trading. The yield on the 30-year Treasury bond fell to 2.343%.

The 10-year Treasury yield topped 1.68% in the previous session, after minutes from the Fed’s April meeting showed the central bank would reconsider its easy monetary policy if the economy continued to rapidly improve.

Lower Weekly Claims Spark Rebound Rally

The smallest weekly jobless claims since the start of a pandemic-driven recession lifted investor sentiment.

The number of Americans filing for new claims for unemployment benefits fell to 444,000 in the week-ended May 15, down for the third straight time, suggesting job growth picked up this month, though companies still are desperate for workers.

Sectors and Stocks

The technology sector led the gains, but they may have been limited by weakness in the retail sector.

Tech-related companies like Microsoft, Facebook and Alphabet all rose more than 1% while Netflix and Apple rallied more than 2% each.

Home Depot shares rose 0.66% in extended trading Thursday after the retailer announced a new $20 billion share buyback program. Home Depot’s announcement came after the company reported first-quarter earnings and revenue Tuesday crushing analysts’ expectations.

While Home Deport was providing support, other retailers were a weak spot. Ralph Lauren Corp dropped 7.01% after it forecast full-year sales below analysts’ estimates, making it the largest percentage decliner on the S&P 500 Index.

Kohl’s Corp slumped 10.17% after warning of a hit to its full-year profit margin from higher labor and shipping costs, as well as selling fewer products at full price.

Looking Ahead…

On Friday, the U.S. will report Flash Manufacturing PMI. It is expected to come in at 60.0, down slightly from the previously reported 60.5.

Flash Services PMI is expected to have risen 64.3, down from 64.7.

Existing Home Sales are predicted to have risen by 6.09 million units, up slightly from 6.01 million units.

For a look at all of today’s economic events, check out our economic calendar.

Wall St Gains 1% as Tech Shares Rally, Treasury Yields Fall

By Caroline Valetkevitch

Cryptocurrencies bounced back from their recent sharp drop, but were well off the day’s highs by afternoon New York time.

Bitcoin was most recently up 8.9% at $40,050 after plummeting to 54% below its record high, hit just over a month ago, after some of its prominent backers reiterated their support for the digital currency.

Smaller rival ether ETH=BTSP gained 15.32 to $2,811. On Wednesday, it fell 22.8%, its biggest daily fall since March 2020.

Investors also are still digesting minutes from the Fed’s meeting last month, which showed a number of officials thought that if the recovery holds up it might be appropriate to “begin discussing a plan for adjusting the pace of asset purchases.”

The S&P 500 technology index was up 2.1%.

The Dow Jones Industrial Average rose 234.46 points, or 0.69%, to 34,130.5, the S&P 500 gained 47.48 points, or 1.15%, to 4,163.16 and the Nasdaq Composite added 240.91 points, or 1.81%, to 13,540.65.

The pan-European STOXX 600 index rose 1.27% and MSCI’s gauge of stocks across the globe gained 1.07%.

The yield on benchmark 10-year Treasury notes fell 4.3 basis points to 1.640% and the breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) US5YTIP=RR slid to 2.608%.

Market expectations of a further rise in inflation would need evidence of the economy moving past full employment very, very rapidly, said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC.

“We’ve probably already reached the peak level of economic activity, and that probably happened in March and April,” Ricchiuto added.

In the foreign exchange market, the dollar lost ground and was hovering near multi-month lows.

The dollar index fell 0.503%, with the euro up 0.44% to $1.2225.

The bounces in cryptocurrencies came after crypto backers such as Ark Invest’s Cathie Wood and Tesla’s Elon Musk indicated their support on Wednesday.

Concerns over tighter regulation in China and unease over the extent of leveraged positions in the cryptocurrency world had caused this week’s big selloff.

Outages at several major trading platforms during the maelstrom, which also set ether tumbling nearly 50%, did little to inspire confidence.

SPACs – special purpose vehicles set up and listed to buy up other firms – experienced huge growth last year, as did the ARK innovation fund that focuses on tech companies.

Oil prices dropped more than 2% after diplomats said progress was made toward a deal to lift U.S. sanctions on Iran. Brent crude fell $1.55, or 2.3%, to settle at $65.11 a barrel. West Texas Intermediate crude ended $1.31, or 2.1%, lower at $62.05 a barrel. Both contracts fell around 3% in the previous session.

U.S. gold futures gained 0.13% to $1,881.80 an ounce.

(Additional reporting by Marc Jones in London, Herbert Lash, Stephanie Kelly and Stephen Culp in New York; Medha Singh and Shashank Nayar in Bengaluru; Tom Westbrook in Singapore; Editing by Peter Graff, William Maclean and Will Dunham)

Gold Recovers After Yesterday’s Strong Decline

In other words, higher inflation would typically create bullish market sentiment for the precious yellow metal. Yesterday’s report by the Bureau of Labor Statistics indicated that inflation rose by 0.8% in April, which takes the annual inflation rate to 4.2%, which is the highest level of inflation seen since 2008. The quandary is why gold sold off so dramatically in light of fundamental events that would typically result in the opposite reaction by traders and market participants.

The report did create havoc in the financial markets taking U.S. equities lower, U.S. debt instrument yields higher, and a strong move to the upside in the U.S. dollar. In fact, the dollar gained roughly double the percentage drawdown that occurred in gold pricing.

One possible explanation was that the uptick in inflation occurred primarily due to a massive increase in the cost of new and used cars and trucks. The data indicated that the cost of a new or used automobile or truck increased by approximately 10%. The primary reason for such a dramatic increase in a short period of time was a supply issue based upon a shortage of microchips needed in automobile production. As such, this supply-chain issue will most likely be temporary in nature and therefore was viewed in a much different way. However, the other component was increase costs in food. That being said, there is also a supply-chain issue, but food costs could continue to maintain a higher price point for a longer period of time and have a sustained and systemic impact on the inflation rate.

There is a camp of economists that believe that the concern regarding rising inflation is legitimate and a reason for real concern. As we spoke about yesterday, BCA research, considered to be one of the world’s leading providers of global macro research since 1949, said that “Fears about inflation are not out of order. Chinese producer prices spiked in April, raising the risk of imported inflation.”

While the dollar did show mild strength today, it was only a fractional gain of +0.03%, unlike yesterday’s 0.75% gain. Concurrently yields for the U.S. 10-year Treasury note dropped slightly from 1.693% to 1.657%. The combination of a neutral dollar and lower yields moved market sentiment away from the selling pressure we saw yesterday, with gold futures posting a modest gain.

As of 4:43 PM EST, gold futures basis, the most active June 2021 Comex contract is currently fixed at $1826.70 after factoring in today’s gain of $3.90 (+0.21%).

gold with fib

Gold futures incurred a strong selloff yesterday, trading to a low of $1813, recovering approximately $20 from those lows by the close of trading in New York. This gave gold bulls the incentive to buy the dip, believing that yesterday’s selloff might, in fact, be a one-and-done occurrence.

Our technical studies indicate extremely strong support at $1796.10, which is based upon gold’s current 100-day moving average. Major resistance occurs between $1845 and $1854.50, which is the 200-day moving average.

Gold May 13

Lastly, when we look at the position of the moving averages, it seems as though the 21-day exponential moving average is about to cross above the 100-day moving average. It crossed above the 50-day moving average on April 21. While the 200-day moving average is still in bearish alignment as it is above current pricing, the shorter-term moving averages are aligning themselves in a bullish formation which indicates the real potential for gold to move higher over this next month.

may 13 gold candle chart

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Wishing you, as always, good trading and good health,

Gary Wagner

Treasury Traders are Asking, ‘What if the Fed is Wrong about Rising Prices Being Just ‘Transitory’?’

The sharp sell-off in the U.S. equity markets on Wednesday may have grabbed most of the headlines, but the most telling event and the one that drove the price action in several financial markets including stocks, gold and Forex was a jump to a one-month high by the U.S. Treasury yields.

This is because when it’s all said and done, Treasury yields set the tone in all markets. To some, Wednesday’s jump in yields may have come as a surprise, but the surprise was in the consumer price report. The move in yields may have been telegraphed as early as last Friday when yields clawed back from weakness driven by the huge U.S. jobs miss.

Treasury Yields Tick Higher, Reversing Post-Jobs Report Decline

When the jobs report came out at 12:30 GMT last Friday, professionals were already looking forward to the inflation report, which they saw with great confidence rising about 3.6%. The jobs data was stale data and most professionals saw the miss to the downside as an aberration.

Chicago Federal Reserve president Charles Evans even said on Monday that April’s unexpectedly small increase of 266,000 payroll jobs is likely a “one month thing” associated with the complexities of reopening the economy after the coronavirus pandemic.

On Friday, U.S. Treasury yields made back some ground after initially falling on April’s jobs report that fell short of expectations.

The yield on the 10-year Treasury note closed flat at 1.579%. Shortly after the release of the jobs report, yields hit 1.469%, its lowest level since March.

Here where it gets complicated. The yield drop was a “knee-jerk reaction” that faded as the session wore on and the market digested the data, according to analysts.

“Despite a huge miss, which it was, it’s still employment going in the right direction,” said Andrew Richman, senior fixed income strategist at Sterling Capital Management.

As of Friday’s close, U.S. interest rate futures indicated that traders pushed out expectations of a Fed rate hike by roughly three months after the payrolls report’s release.

Fast Forward to Wednesday’s Trade

U.S. Treasury yields moved higher on Wednesday after key inflation data showed a faster-than-expected rise in prices.

The yield on the benchmark 10-year Treasury note rose 5 basis points to 1.686%, hitting the highest level since April 13. The yield on the 30-year Treasury bond gained 3 basis points to 2.386%.

At the end of Wednesday’s session, futures market expectations for a Fed rate hike moved forward to December 2022 from mid-2023, said Ian Lyngen, head of rate strategy at BMO.

Higher Yields Coming

Although yields surged on Wednesday, the groundwork for the move had already been laid on Friday after the jobs miss.

Yields rose and financial markets tumbled on Wednesday because red-hot consumer inflation data for April spooked investors and raised concerns that the Fed is wrong about rising prices being just “transitory”.

When yields were rising earlier in the year, the move was fueled mostly by strong expectations of higher inflation and an early exit from policy by the Fed. This was speculation, however, that was squashed by the Fed in its monetary policy statement.

This time the jump in yields is different. This time, the professionals have evidence of inflation. This time, speculators and professionals are saying that if the Fed is incorrect about inflation being temporary. Then it could begin to unwind its easy policies quicker than expected and ultimately raise interest rates.

For a look at all of today’s economic events, check out our economic calendar.

Gold Scores Fractional Gains Even Though The Dollar Recovered From The Lows Of The Day

However, the real news in trading today was the intraday low that came in at $1817.80 before recovering over $20 to close with modest gains on the day. Gold made a trade to a lower high than yesterday, but market participants focused immensely on the selloff that occurred during the trading session.

gold May 11

Much of today’s selloff was directly related to the U.S. 10-year Treasury note, which now is yielding 1.62%. Gold also recovered as the U.S. dollar traded to a low of 89.95 and recovered unchanged at 90.185. Even though the dollar closed unchanged, it did make a lower low than the previous day. In fact, the last time the dollar traded below 90.00 was on February 25 of this year. In January, the dollar index traded to its lowest value this year, hitting an intraday low of 89.15.

The fact that we are now witnessing gold solidly above $1800 expresses a strong change in market sentiment from neutral to bullish. Considering that before we saw gold rise above $1800, it was mired in an extremely narrow trading range that was defined by support at the 21-day exponential moving average and resistance occurring at the 100 – day moving average. During the beginning of May, we had multiple occurrences in which market participants were able to move gold pricing just below the 100-day moving average, which then was at approximately $1800 and is now fixed at $1797.20.

The break above $1800, which occurred on May 6, took gold from an opening price of $1787 and then closed solidly above $1800, closing at $1816 on May 6. This was followed by another dramatic rise in gold pricing, with gold opening just above the closing price of May 6 and closing at $1832 on Thursday of last week. Yesterdays and today’s trading activity created two consecutive Japanese candlesticks called a “Doji.”

This type of candlestick can be found at market tops and bottoms as the pivotal candle indicating a key reversal. However, they are also prevalent after a market has made a sustained move to higher or lower ground and consolidates at that new price point.

In the case of the last two trading days, my interpretation is that we are witnessing a period of consolidation. This is based on our technical studies, which indicate that major resistance does occur until approximately $1855. This is the most logical point on a technical basis where we could see resistance occur. Up until that price point, there are no major levels that we can identify as strong resistance. Therefore, I believe we will see gold continue to move higher, at least until $1855.

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Wishing you, as always, good trading and good health,

Gary Wagner

 

Gold Rallies But At Least For Now Fails To Trade Above Resistance

As of 4:45 PM EST, the most active gold contract is trading up $25.50 and is currently fixed at $1793.20. After trading under pressure and closing lower last week, gold futures opened at $1768.10, which corresponds roughly to the close on Friday. Factors contributing to today’s strong upside move are U.S. dollar weakness as well as slightly lower yields on the U.S. 10-year Treasury note. It must be noted that today’s high of 1798.90 falls just shy of the current major resistance at $1800.

gold may 3

Currently, the dollar index is fixed at 90.95 after factoring in today’s decline of 32 points (-0.36). Today’s lower pricing gives back roughly half of the gains witnessed on Friday as the dollar index surged up approximately three-quarters of a percent.

Treasury yields had a slight fall losing approximately three basis points, and are currently trading at approximately 1.608. The higher 10-year note, which resulted in lower yields, was the result of the ISM manufacturing PMI report for April, which came in at 60.7. This was well below the economic forecast, which expected the number to be 65 or higher.

According to CNBC, “This compares to March’s level of 64.7. The index measures manufacturing activity via a survey of more than 300 manufacturing company purchasing managers conducted every month by the Institute for Supply Management. IHS Markit U.S. manufacturing activity grew at a record-high speed in April, data from a survey compiled by IHS Markit showed Monday. April’s Manufacturing Business Activity PMI Index came in at 60.5, above the 59.1 print in March.”

Silver, spot and futures rally

Silver had the strongest percentage gains of all for precious metals (gold, silver, platinum, and palladium), gaining over 4% in futures trading today. Traders have moved to June now the most active contract. June silver is currently fixed at $27.01 after factoring in today’s gain of $1.14. That amounts to a percentage gain of 4.43%. Spot or Forex silver is currently fixed at $26.87, which is the result of approximately $0.98, a net gain of 3.81%.

silver May 3

Copper futures continue their historic rally

Copper futures continued their historic price increase and are certainly within the range of taking out the all-time high that occurred during the first quarter of 2011. Although the all-time record high for copper futures is $4.65 per pound, the highest close on record of $4.4919 was taken out on a closing basis with today’s large gains. In fact, if copper holds the gains established today on a weekly basis, it would be the highest closing price ever recorded for the highly used industrial metal.

Copper May 3

According to MarketWatch, commodity strategists at Bank of America acknowledged that “The world risks “running out of copper” amid growing demand for the metal, paving the way for a spike in prices just as the global economic reopening gets under way.”

In fact, according to this report, current inventories, which are measured in metric tons, now stand at a level seen 15 years ago. This, according to the report, implies that current stocks will only cover 3.3 weeks of demand, and as such, Bank of America strategists believe that the price of copper could rise to 13,000 per metric ton, which amounts to $5.89 per pound in the upcoming months. They’re forecasting that the copper market’s deficits which are seen as drops in inventory, will continue through 2022.

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Wishing you, as always, good trading and good health,

Gary Wagner

 

Gold Pricing Continues to React to Higher Yields in U.S. Debt Instruments

Gold hit its highest price point this month last week, the week of April 19, with market participants taking gold futures just a couple of dollars short of $1800 per ounce. However, during the week of April 19, gold futures opened on Monday only to close on Friday roughly at the same price point; $1778. The first two weeks of April both resulted in gold closing higher on the week, with the largest weekly gain occurring during the week of April 12. During the second week of April, gold opened at $1745 and closed at $1780, gaining approximately $35 on the week. That was the largest single-week gain this month.

Gold with 21E MA April 30

Because gold is paired and traded against the U.S. dollar, one can see an inverse relationship between recent dollar weakness and gold strength over the first two weeks of April.

Monthly Gold April 30

During the last week of March, gold pricing hit a second double bottom, with market participants observing the precious yellow metal trading just below $1680. Concurrently the dollar index was at its highest value during the last week of March. The lowest value of the USD this year occurred during the first week of January 2020, breaking below 89.00 on the dollar index. Historically the dollar has not had this low of a value since the first few months of 2018.

The highs that were achieved during the last month of March took the dollar’s value to highs not witnessed since the first week of November 2020, in each occasion trading to a high value of 93.50. This was followed by a decline in dollar value for three consecutive weeks and ended this week with the dollar trading to a low of 90.40.

The dollar index surged in trading today, gaining three-quarters of a percent, a total of 0.682 points, and is currently fixed at 91.275.

LT Dollar Weekly chart

Dollar strength can also be deeply integrated into the rise or fall of U.S. Treasury bonds and 10-year notes. Higher yields in U.S. debt instruments can make that investment more attractive to investors seeking fixed income both in the United States and abroad. Higher yields in U.S. Debt instruments will also put downside pressure on gold, making the safe-haven asset class less attractive. It is this push and pulls of contrary market forces that have resulted in the recent price action in gold. Although gold closed lower on the day and week, it did result in a gain during the month of April.

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Wishing you, as always, good trading and good health,

Gary Wagner

 

Strong U.S. Equities, Bond Yields, and GDP Put Pressure on Gold

These events resulted in an extended trading range for gold. Gold traded to an intraday high of $1789.90 a low of $1756.60, and gold futures moved back to near on changed. As of 4:40 PM EST, the most active June 2021 Comex contract was fixed at $1772, which is the result of a $1.90 decline.

gold April 29

There were multiple factors that pressured gold today, the first of which was an exceedingly strong report on the gross domestic product of the United States. Today the Commerce Department released an advance estimate of the first quarter GDP for 2021. The official government website said that “Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2020, real GDP increased 4.3 percent. The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The “second” estimate for the first quarter, based on more complete data, will be released on May 27, 2021.”

The official website said that the real increase in GDP for the first quarter of 2021 was a reflection of increases in PCE (personal consumption expenditures), nonresidential fixed investment, government spending, residential fixed investment, and state and local government spending. These expenses were partially offset by decreases in private inventory investments and exports.

Investors today turned to U.S. equities favoring the risk-on asset class, which also pressured gold. The Standard & Poor’s 500 traded to a new all-time record high of 4211.47, a net gain of 28.29 points (+0.68%). Although the Dow Jones Industrial Average did not trade to a new record high, it gained almost 0.75%, which is a net gain of 239.98 points and closed at 34,060. The NASDAQ composite gained +0.22% today and is currently fixed at 14,082.5461.

Lastly, U.S. 10-year Treasury notes gained +0.18 today and currently have a yield of 1.638%. Today’s rise in the yield of 10-year notes followed the release of the first-quarter GDP estimates. The 30-year Treasury bond gained approximately two basis points, currently yielding 2.32%.

The latest numbers indicating strong growth, as reflected in the most current estimates of GDP, set the wheels in motion for both a strong finish in U.S. equities and rising yields in U.S. bonds. Concurrently they also pressured gold prices resulting in today’s low of $1754.60.

It seems as though market participants are disregarding the recent swelling of the national debt as well as the Federal Reserve’s balance sheet, which currently stands well in excess of $7 trillion. The economic fallout from these increasingly expensive burdens on the U.S. does not seem to affect the optimism for strong economic growth in the United States.

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Wishing you, as always, good trading and good health,

Gary Wagner

Fed Holds Policy Steady, Acknowledges ‘Strengthened’ Recovery, Gives No Signs of Tightening Plans

The U.S. Federal Reserve held its benchmark interest rate and its monthly bond-buying program steady on Wednesday, as widely expected, while acknowledging the strength in the U.S. economy but giving no signs it was ready to start reducing its support for the recovery.

Fed Credits Vaccinations, Policy for Strengthening Economy, Employment

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the U.S. central bank said in a unanimous policy statement at the end of a two-day meeting.

Fed Continues to See Risks

Despite the improvement, Fed policymakers still see risks to the economy. “The path of the economy will depend significantly on the course of the virus, including progress on vaccinations,” the Fed said. “The ongoing public health crisis continues to weigh on the economy and risks to the economic outlook remain.’

Fed Dampens View on Coronavirus

The Fed changed the language about the coronavirus in April’s statement, reflecting a slightly less negative view than the Fed’s description in March, when it said the health crisis “poses considerable risks to the economic outlook.”

Fed Reiterates Guidance

Despite acknowledging the gains in the economy, Fed policymakers reiterated the guidance it has followed since December, setting the list of conditions that must be achieved before it considers pulling back from the emergency support put in place to stem the economic fallout of the pandemic in 2020. That includes “substantial further progress” towards its inflation and employment goals before stepping back from its monthly bond purchases.

Mixed Market Reaction

Ahead of the release of the Fed’s monetary policy statement, investors and analysts weren’t expecting any major changes from the Federal Reserve, and the initial reaction in the financial markets was subdued. Stocks were flat, yields were slightly higher and the dollar was capped.

Time Will Tell

Since the last Fed meeting in March, U.S. job growth has surged and inflation has risen. Nonetheless, the economy remains more than 8 million jobs short of where it was before the pandemic forced whole industries to shut down in an effort to control the spread of the virus. Furthermore, policymakers will allow inflation to overshoot the 2% benchmark.

Overtime, conditions are expected to improve further which will offer the Fed the opportunity to begin trimming its $120 billion in monthly bond purchases. This will eventually lead to policymakers lifting overnight interest rates from the current historically low levels.

The Fed will maintain current levels of economic aid, but the economy’s prospects will also be contingent on continued progress in managing the pandemic.

For a look at all of today’s economic events, check out our economic calendar.

How Does the Fed Measure Inflation?

U.S. Federal Reserve policymakers are expected to stick with its current super-loose monetary policy at its next Federal Open Market Committee (FOMC) meeting on April 27-28, even as the economy strengthens and increasing COVID-19 vaccinations make a return to a more normal life in the United States likely in 2021.

This prediction was easy to make because that is what Federal Reserve Chairman Jerome Powell and his policymakers have told us several times since their last policy meeting in mid-March. In fact, the Fed also added the U.S. economy is going to temporarily see “a little higher” inflation this year as the recovery strengthens and supply constraints push up prices in some sectors. Nonetheless, the Fed is committed to limiting any overshoot.

“We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period,” Powell said.

Those modifiers – “substantially” exceeding 2% inflation or above that level for a “prolonged” period – help to more sharply define the upper bounds of the Fed’s comfort zone as prices rise.

“I would emphasize, though, that we are fully committed to both legs of out dual mandate – maximum employment and stable prices,” Powell said.

Inflation is Rising

Consumer prices shot higher in March, given a boost by a strong economic recovery and year-over-year comparisons. The consumer price index (CPI) rose 0.6% from the previous month but 2.6% from the same period a year ago. The year-over-year gain is the highest since August 2018 and was well above the 1.7% recorded in February. Core CPI, which excludes volatile food and energy costs, increased 0.3% monthly and 1.6% year-over-year.

Later in April, the government will release another report on inflation. It’s called the Personal Consumption Expenditures (PCE) price index and is often referred to as the Federal Reserve’s preferred price index. This report is also expected to rise, but it begs the questions, which inflation report offers a more accurate depiction of price growth and why does the Fed prefer to use the PCE figures?

What’s the Difference between the CPI and the PCE?

The FOMC, which sets the Federal Reserve’s monetary policy, judge’s inflation by the Personal Consumption Expenditure (PCE) price index. While the Consumer Price Index (CPI) looks at what people are buying, PCE looks at what businesses are selling.

The PCE tends to capture a broader picture of spending and contemplates substitution among goods when something gets more expensive – so if the price of bananas goes up, it takes into account that some people will start buying apples instead. PCE doesn’t just measure people’s out-of-pocket costs for health care, it also contemplates what Medicare is paying.

Inflation versus Core Inflation

Another term that gets mentioned a lot is “core inflation”. Both the CPI and PCE are calculated taking overall inflation minus food and energy into account. The government and the Federal Reserve prefer a measurement of inflation that takes out food and energy prices because they are quite volatile, and they can swing based on factors such as oil supply and severe weather. Economists and Fed policymakers prefer to take them out of the inflation equation to get a better sense of what’s going on in the economy.

Example:  March 2021 Consumer Price Index (CPI) Numbers

Earlier this month, March CPI was up 0.6 percent for the month – more than the 0.4 percent increase in February. But Core-CPI was up 0.3 percent. Over the past year, the Consumer Price Index was up 2.6 percent, but the core index increased by 1.6 percent.

Conclusion

Depending on which segment of the economy you’re looking at, you can tell different stories about what’s happening with inflation. But that’s where the Fed comes in. Inflation should not be a concern that keeps you up at night, that’s sort of the goal, from the Fed’s standpoint.

Below, say 2%, consumers generally don’t have to worry about it. Some prices will rise, some prices will fall: on balance, your wages keep going up with your overall cost of living, and you don’t have to think about it. That’s the Fed’s objective:  maintain control of inflation so people don’t have to worry about it in their daily lives. In order to do this, it focuses on the Personal Consumption Expenditure (PCE) price index.

The economy has started to get warmer and at times, we will see inflationary spikes as sectors reopen and consumers spend their stimulus money. Volatile food and energy prices will jump when compared to last year’s levels, but then conditions are expected to flatten out. At least that’s what the Fed is expecting. So at this time, expect higher inflation, but don’t worry about it spiraling out of control.

For a look at all of today’s economic events, check out our economic calendar.

Gold Closes The Week In-Essence Unchanged

While gold had just under a $50 trading range during the week, by Friday’s close, gold futures lost only $2.20. The June contract traded to a high this week of $1798.80 and a low of $1764.40.

Gold Weekly Candle Chart

In the case of today’s fractional decline, it was an uptick in the yields of the U.S. 10-year Treasury note, as well as robust data regarding strong new home sales, which was credited as responsible for the decline.

Yesterday the U.S. Census Bureau reported that new home sales as viewed through a seasonally adjusted annual rate came in at 1,021,000 in March. This is the fastest growth of new home sales since 2006.

As reported by Markets Insider, “In the bond market, treasuries once again showed a lack of direction before ending the day in the red. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inch up by 1.3 basis points to 1.567 percent.”

According to Reuters, “Ten-year yields have stabilized and the inflation rebound to 2.6%, well above target, is likely to be short-lived. Still, swaps show that market expectations of future inflation are rising, and that means Treasury volatility may not be over yet.”

Even with strong tailwinds from dollar weakness today, gold prices were still unable to close positively on the day. The dollar index lost 52 points in trading on Friday, closing at 90.80, a net decline of -0.57%. The U.S. dollar has now closed lower on a weekly basis for the last three consecutive weeks. Four weeks ago, on the week of March 29, the dollar index closed at approximately 92.90. Since the last week of March to current pricing the dollar index has lost roughly 2.1%.

Dollar weekly candle chart April 23

Concurrently gold prices over the last four trading weeks had risen from the second of a double bottom which occurred during the week of March 29 when gold traded to a low of $1677, to the high this week of $1798.80. In the last four trading weeks, gold has had a range of over $100, and even with this week’s fractional decline has had a significant gain throughout the month of April.

The week in review

When we look at the price changes that occurred this week in gold, it is obvious that a number of fundamental events had an opposing influence on pricing. At the beginning of the week, gains were the result of a renewed concern of recent upticks in Covid-19 infections, pointing to a contraction in the growth of the global economy. India experienced the highest surge in new infections, surpassing 300,000 daily reported cases on Thursday. During the latter part of the week, gold prices declined as a result of higher yields in 10-year notes and solid economic data in the United States.

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Wishing you, as always, good trading and good health,

Gary Wagner

Traders Continue to Focus on the Recent Double Bottom in Gold

The June contract did trade to a lower low than yesterday, hitting $1763.50 on an intraday basis. Gold also traded to a lower high when compared to yesterday; however, it closed solidly above Monday’s settlement price.

It was buying by market participants that resulted in today’s price advance. It can be clearly seen when we look at current spot or forex gold prices through the Kitco Gold Index (KGX). Spot gold is currently fixed at $1778.80, after factoring in today’s price advance of $6.80. However, dollar strength resulted in a decline of $2.35, with market participants bidding the precious yellow metal higher by $10.10.

kgx april 20

A major factor that definitely influenced market participants buying was a slight down-tic in the yield of 10-year notes, which are currently fixed at 1.56%. The ten-year note was fixed at 1.59% yesterday, so today’s fractional decline in yield certainly got the attention of gold traders.

Market participants are reacting to fundamental news as well as a strong technical identification of a double bottom. As we had spoken about on many occasions, lows that occurred on March 8, when traders took gold pricing to a low of approximately $1674, tested the fortitude of the bullish faction’s belief that gold pricing was oversold. This resulted in a rally that was short-lived. The first attempt of a rally failed at approximately $1742. On March 31, the lows of March 8 were retested, creating a double bottom as gold prices declined from $1742 to a low of $1678 at the end of March.

April 20 Gold double bottom

On April 1, traders moved gold pricing above the bottom that occurred on March 30 and 31st, taking gold futures to approximately $1730. Gold continued to make higher highs throughout the first week of April before consolidating and trading sideways with resistance between $1750 and $1760 up until the end of last week. On Thursday, April 15, gold scored dynamic gains of approximately $28, which broke above the consolidation that occurred during the first two weeks of April. This was followed by a $10 gain on Friday, April 16.

Gold closed lower yesterday; however, it did trade to the highest intraday high of $1790 since the lows of the double bottom before settling at $1770. Today’s additional gain took gold pricing to $1779.20. Our technical studies indicate that there is minor resistance at $1784 based upon the 38.2% Fibonacci retracement. There could be major resistance at $1802, which is based upon the 100-day moving average.

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Wishing you, as always, good trading and good health,

Gary Wagner