Asia Shares Sit at 2021 Lows Ahead of Fed Decision, China Steadies

By Alun John

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.91%, though markets in Hong Kong and mainland China saw milder losses after a sharp sell-off in the previous sessions.

U.S. stock futures, the S&P 500 e-minis, were down 0.26%, pan-region Euro Stoxx 50 futures dropped 0.11%, and FTSE futures fell 0.3%.

Asian shares have fallen in each of the three previous sessions as broadening regulatory crackdowns in China roiled stocks in the technology, property and education sectors, leaving international investors bruised.

Chinese state-run financial media urged calm on Wednesday morning, and while Chinese shares swung back and forth in early trading, they did not repeat the sharp plunges seen earlier in the week.

Chinese blue chips were last 0.46% lower, having had a volatile day, and the Hong Kong benchmark gave up early gains to fall 0.82%. Both were pinned around eight-month lows.

The embattled Hang Seng Tech Index also gave up early gains to fall 0.4%, a day after touching its lowest level since the index’s creation in July 2020. It is down over 40% from its February high.

Japan’s Nikkei slid 1.73%, with shares in SoftBank Group, a major investor in Chinese tech, falling 4.7%.

“China and the Fed are the two key things for today,” said Tai Hui, chief market strategist for Asia Pacific, at JPMorgan Asset Management.

“We are still trying to digest the news from China, what’s going to be new is how the Fed view the latest round of (COVID-19) infections and whether they need to readjust their view,” he said.

The statement from the Fed policy meeting is due at 2 p.m. EDT (1800 GMT), with a news conference by Chairman Jerome Powell expected a half hour later.

Markets will be watching closely for any hints on when the Fed will start reducing its purchases of government bonds and any fresh insight into its views on inflation and economic growth.

The declines in Asian equities on Tuesday spread to other markets overnight, causing Wall Street to retreat a little from the record highs set earlier in the week.

The Dow Jones Industrial Average ended Tuesday down 0.2%, the S&P 500 shed 0.5% and the Nasdaq Composite slid 1.2%. [.N]

After the U.S. close, Google parent Alphabet Inc, Microsoft, and Apple all reported record quarterly earnings, though the smartphone maker’s shares slid in after-hours trading on the back of a slower growth forecast.

In currency markets, things were fairly quiet in Asian trading hours, with the U.S. dollar sitting below recent highs after a month-long rally.

The safe-haven yen held onto earlier gains and the risk-sensitive Australian and New Zealand dollars dropped back, but while analysts at CBA attributed the earlier moves to falling risk sentiment on the back of the Chinese regulatory crackdown, they said market participants were now turning their attention to the Fed.

The yield on benchmark 10-year Treasury notes was little changed from the U.S. close at 1.236% compared to 1.234%.

Oil prices rose as industry data showed U.S. crude and product inventories fell more sharply than expected last week, outweighing worries that surging COVID-19 cases would curb fuel demand. U.S. crude rose 0.56% to $72.05 a barrel and Brent crude rose 0.36% to $74.81 per barrel. Gold strengthened, with spot prices above the key psychological level of $1,800, while Bitcoin rose around 1.3%, trading either side of $40,000.

(Editing by Ana Nicolaci da Costa and Kim Coghill)

China Jitters Drag Asian Stocks to Seven-Month Low

By Alun John

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.97% to its lowest level since December, having slid 2.45% the previous day.

The Hong Kong benchmark fell 2.84% on Tuesday, its third day of declines, with the Hang Seng Tech index down 6.46% to its lowest since its inception in July 2020. It has fallen around 14% in three days and has lost 41% from a February peak.

Big decliners included Meituan and Alibaba, whose shares fell 12.7% and 5.5% respectively. Both were down for the third successive day with investors expecting the companies’ food delivery arms to be affected by new regulations guaranteeing workers above minimum pay.

In onshore markets, Chinese bluechips dropped sharply in afternoon trading, falling 2.93% after closing at their lowest since December on Monday thanks to regulatory crackdowns in the education and property sectors.

“The market seems to be uncertain whether there will be more policy changes for fintech, social media platforms, delivery platforms and ride hailing platforms,” said Iris Pang, chief economist for Greater China at ING.

“Each has their own issue and faces different regulatory actions, so the market is looking for ‘which technology subsector will be next?'”

Elsewhere in Asia, investors were more optimistic, with Japan’s Nikkei rising 0.49%, and Australian shares closing up 0.46%.

Other markets were set to open lower with S&P 500 futures dipping 0.21%, Euro STOXX 50 futures down 0.09% and FTSE futures off 0.19%.

U.S. corporate earnings and the Fed’s monetary policy meeting were also on investors’ minds.

“It’s profits and the Fed. The next couple of days are going to be monumental as everyone tries to figure out how strong corporate fundamentals are at the moment and in what context that is happening in terms of the economic outlook and policy settings,” said Kyle Rodda, market analyst at IG Markets.

Alphabet Inc, Apple Inc and Microsoft Corp < MSFT.O> are set to publish quarterly results late on Tuesday, with Amazon.com Inc’s due later in the week.

In addition, the Fed will begins its two day meeting on Tuesday, with investors set to scrutinise a statement and press conference from Chair Jerome Powell due late Wednesday.

They will be looking to see how the central bank will balance fast-rising prices with the complication of increased coronavirus infections.

All three major U.S. stock indexes closed at record highs for a second straight session on Monday

However, the looming Fed meeting kept a dampener on major moves in other asset classes.

The dollar hovered around its recent peak during Asian hours, the Aussie dollar weakened and sterling gained amid worries about a worsening COVID-19 situation in Sydney, compared with a decline in new daily cases in the UK.

U.S. Treasury yields wobbled in Asian trading on Tuesday, following a choppy Monday, but ended little changed.

The yield on benchmark 10-year Treasury notes was last 1.2795% compared with its U.S. close of 1.276%, while the two-year yield touched 0.2134% compared with a U.S. close of 0.196%.

Gold was slightly lower, with the spot price trading at $1,794.5 per ounce, while U.S. crude ticked up 0.31% to $72.13 a barrel.

Bitcoin dropped to around $37,000 from a Monday peak of $40,581 after Amazon.com offered a qualified denial of a weekend news report that said it was preparing to accept cryptocurrencies.

(Reporting by Alun John; Editing by Lincoln Feast, Ana Nicolaci da Costa and Sam Holmes)

U.S. Stock Markets Hit New Highs, Treasury Yields up as Choppy Week Ends

Megacap tech stocks and positive corporate earnings helped drive main U.S. indexes up again. Yields on U.S. Treasuries were also up, as was the dollar, with investors eyeing next week’s Federal Reserve meeting for hints on the U.S. economic recovery from the COVID-19 pandemic and when the central bank will pull back support for the economy.

“It’s certainly been a really strong run. For now it looks justified based on the strong earnings results. We got interest rate stability, which was helpful. As the economic recovery continues, as long as people are continuing to get out there despite the Delta variant, we think stocks can go higher,” said Jeff Buchbinder, equity strategist for LPL Financial. “We think the ride will get bumpier in the second half, but we think the bull market continues.”

The Dow Jones Industrial Average rose 238.2 points, or 0.68%, to close the week at 35,061.55, while the S&P 500 gained 44.31 points, or 1.01%, to 4,411.79. The Nasdaq Composite added 152.39 points, or 1.04%, to close at 14,836.99.

The greenback on Friday booked a second week of gains after a volatile few days as risk appetite waxed and waned.

The dollar index, which measures the greenback against a basket of six major currencies, was slightly higher on the day at 92.894. That was off a 3-1/2-month high of 93.194 hit on Wednesday.

For the week, it was up 0.1%, after rising 0.6% previously.

The yield on 10-year Treasury notes hovered around 1.3%, or almost 17 basis points higher than a five-month low set on Tuesday, but was still at the low end of a recent range. The benchmark note traded up 2.1 basis points to 1.288% after briefly rising above 1.3%.

“We’re closing out the week on a very nice trade, and it’s being driven by earnings primarily and earnings specifically in stocks that speak to the consumer, which is not a new story but it’s a story that adds momentum to the trade in the second half of the year,” said Peter Kenny, founder of Kenny & Co LLC, the parent company for Strategic Board Solutions and Kenny’s Commentary, a subscriber-based political and economic newsletter.

After declining earlier in the trading session, oil was set to end the week slightly up.

Investors have been assuming “things will improve, travel will increase,” said Steve Massocca, managing director at Wedbush Securities. “There are concerns about the Delta variant.”

Massocca added, “If that thesis is thrown into jeopardy, it put a hitch in the ‘giddy up’ in the market.”

Some parts of the United States are implementing mask mandates again due to new COVID-19 cases, while others have not, leading to confusion.

U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity, a report from data firm IHS Markit showed on Friday.

Positive corporate earnings helped the stock market. American Express Co jumped 1.7% after posting second-quarter profit that beat expectations.

Social media firms Twitter Inc and Snap Inc gained 3.8% and 24.5%, respectively, after their upbeat results.

Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy.

After recording its steepest one-day drop since May on Monday, the S&P 500 stock index went on to post the biggest one-day jump since March a day later. Currency, bond and commodities markets have seen similar gyrations.

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

(Reporting by Jessica DiNapoli; Additional reporting by Dhara Ranasinghe and Wayne Cole in Syndey; Editing by Ana Nicolaci da Costa, Will Dunham, Pravin Char, Dan Grebler and Raissa Kasolowsky)

 

Gold Fights Against the Currents of the Dollar, Rising Yields, Equities, and Crypto

Recently it has been struggling successfully to stay above $1800 per ounce. On Monday as well as today, gold prices came close to testing the 100-day moving average, which is currently at $1792.10, and on both occasions closed just above $1800.

gold July21

In the case of today’s intraday low of $1794.30 for gold futures, it was dollar strength in trading overseas last night that took prices to that low. However, the dollar closed lower in New York trading, which resulted in gold moving back above $1800. As of 5:30 PM EST gold futures basis, the most active August 2021 Comex contract is fixed at $1803.80, which is a net decline of $7.50. Concurrently the dollar index has come off of the highs of 93.19 achieved last night and is currently trading at 92.84, which is a net decline of -0.015%.

Yields on the 10-year Treasury Note gained 0.0710 or 5.87% and is currently fixed at 1.28%, creating another strong current that is curtailing any upside movement in gold.

There is also a case to be made that investment dollars today were flowing into U.S. equities markets. The S&P 500 gained 0.82%, the Dow gained 0.83%, and the NASDAQ composite gained 0.92% in trading today.

Cryptocurrencies also showed significant gains today, with Bitcoin Futures gaining 7.07% and Ethereum gaining 8.85%.

Investors always look to have their money in asset classes that will return the greatest results. With strong U.S. equities markets and the potential for cryptocurrencies to have found tentative support, it makes it more difficult for gold prices to rise.

Market participants await the FOMC conclusion meeting on July 28

The future direction of gold prices could certainly be influenced by the upcoming FOMC meeting, which begins on July 27 and concludes the following day when a statement is released, and Chairman Powell has a press conference. The statement, along with Chairman Powell’s press conference, will reveal any change in their current monetary policy.

Market participants are also waiting for any announcement by the European Central Bank on Thursday. According to an article by James Hyerczyk written in FX Empire said, “Gold futures are edging lower on Wednesday, pressured by a firmer U.S. Dollar ahead of the European Central Bank (ECB) announcements on Thursday, another rise in U.S. Treasury yields and increasing demand for riskier assets with U.S. equity markets hovering slightly below record highs. Despite having its gains capped, the market appears to be underpinned by some inflows into the safe-haven metal due to concerns over a surge in COVID-19 cases.”

The fact that gold remains above $1800 is bullish. Especially as we have seen the dollar move higher, yields in 10-year notes and U.S. equities markets both exhibiting gains.

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

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

Gary S. Wagner

 

Stocks, Yields Slip as Investors Await Next Catalyst

The number of Americans filing new claims for unemployment benefits fell to a 16-month low last week as the U.S. labor market steadily gains traction while other data showed import prices rose solidly in June but have probably peaked.

Wall Street traded lower even as the four largest U.S. consumer banks posted blockbuster second-quarter results earlier this week that were above analysts’ estimates.

Investors are looking for visibility into future earnings as stocks have already surged in anticipation of stellar growth.

“We had the rally going into the earnings season. Now that we’re actually here, we’re seeing some softness. I wouldn’t be surprised if we don’t see a lot of strength during this reporting season,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Analysts expect strong earnings, with IBES data from Refinitiv showing consensus looking for a 65.8% gain from a year ago, making corporate guidance more important than results.

‘NAME OF THE GAME’

Energy and technology stocks led the decline on Wall Street, with defensive consumer staples and utilities the only two of 11 S&P 500 sectors to gain. Staples have pricing power that could help Procter & Gamble Co, Coca-Cola Co and others rise, once it is clear their margins remain intact, said Tom Hayes, founder and managing member of Great Hill Capital LLC.

“Guidance is the name of the game. A lot of good news is already baked into the market and even with strong guidance, you may get a breather here,” Hayes said.

The MSCI world equity index, which tracks shares in 50 countries, closed down 0.33% to 723.66 after touching a record high on Wednesday. Europe’s broad FTSEurofirst 300 index closed down 0.92% at 1,761.30, less than 20 points from an all-time peak set Monday.

Losses in Europe were broad-based, with economically sensitive stocks such as banks, automakers and travel down between 0.3% and 1.6% as investors grew wary of rising COVID-19 cases and their potential economic impact.

Official data showed that the United Kingdom reported the highest daily increase in COVID-19 cases since Jan. 15.

On Wall Street, the Dow Jones Industrial Average eked out a 0.15% gain but the S&P 500 fell 0.33% and the Nasdaq Composite slid 0.70%.

Shares in emerging markets rose, bucking the global trend, with MSCI’s index gaining 0.77%.

The 10-year Treasury note fell 5.9 basis points to yield 1.2972%, while the dollar index, which tracks a basket of six currencies, rose 0.19% to 92.586.

The rally in U.S. and European bond prices, which show the inverse of yields, suggested growing investor caution.

The dollar has climbed in recent weeks as investors take stock of the Fed’s increasingly upbeat assessment of the U.S. economy, which for some investors has brought forward the timeframe for its next rate rise. Rates have fallen on Japanese buying and investors selling long-dated maturities for shorter-duration government debt, which has pushed prices up.

The euro fell 0.21% at $1.1810, while the yen traded slid 0.18% at $109.7900.

Oil prices fell as investors braced for increased supplies after a compromise agreement between leading OPEC producers and after a surprisingly low weekly reading on U.S. fuel demand.

Brent crude fell $1.29 to settle at $73.47 a barrel, while U.S. crude slid $1.48 to $71.65 a barrel.

Gold hit a one-month peak, spurred by Federal Reserve Chair Jerome Powell’s dovish comments that squashed market interest rates.

U.S. gold futures gained 0.3% to $1,830.00 an ounce.

COVID-19 VARIANT FEARS

China’s economic data showed average growth surpassed the first quarter, while June retail sales and industrial output beat expectations. But it also showed authorities, which only last week injected 1 trillion yuan into the financial system, will ensure that conditions stay loose.

The World Health Organization (WHO) COVID-19 dashboard reported the first weekly rise in global deaths from the virus in 10 weeks and a 5.6% jump in daily case numbers on Wednesday.

“The market is fearing the Delta variant could take a hold of different economies so you are almost seeing that we are back to the ‘bond yields lower, tech doing well’ scenario,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

The likes of Amazon and Google are up 6-8% this month, while China’s biggest tech firms Alibaba and Tencent have surged more than 12% since China’s central bank made a supportive policy tweak for the first time in nearly a year on Friday.

The Chinese yuan dipped to 6.4628 per dollar in Asia after hitting a three-week high of 6.4508 overnight.

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

(Additional reporting by Sujata Rao; Editing by Will Dunham, Alex Richardson, Barbara Lewis and Gareth Jones)

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.

For more information on our service, simply use this link.

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.

For more information on our service, simply use this link.

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.

For more information on our service, simply use this link.

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

Gary Wagner