【Market Morning】Bitcoin hits $50,000, Stocks rebound, Dow rallies 300 pointsDollar hovers near one-year high

Yesterday Market Review

Gold falls as faltering risk appetite lifts the dollar

Gold prices eased on Tuesday, pressured by gains in the dollar after some investors sought refuge in the U.S. currency from a stock market selloff driven by concerns over soaring energy prices.

Spot gold price was down 0.7% at $1,756.49 per ounce. Spot silver  fell 0.7% to $22.51 per ounce.

The US dollar index rose, supported by fears that rising oil prices would add to existing inflationary pressures.

Although gold is considered a hedge against inflation and geopolitical uncertainties, as a dollar-priced asset it tends to be pressured by strength in the U.S. currency, which makes it more expensive for non-U.S. buyers.

“It’s another frustrating trading day for the gold market,” focusing on the usual short-term developments such as gains in the dollar and U.S. Treasury yields, “while ignoring an unfolding energy crisis that’s driving a negative growth narrative,” said Saxo Bank analyst Ole Hansen.

Apart from inflation, fragile U.S.-China trade ties, China Evergrande’s debt crisis and a stalemate over the U.S. debt ceiling also dampened risk appetite for equities.

While gold could still move higher, a significant move would require a break above technical resistance, especially the 21-day moving average, Hansen said.

Investors’ focus was also on U.S. nonfarm payrolls data due on Friday, expected to show continued improvement in the labour market which could allow the U.S. Federal Reserve to begin tapering its monetary stimulus before year-end.

Reduced stimulus and higher interest rates lift bond yields, pressuring gold as it raises the opportunity cost of holding non-interest-bearing bullion.

Gold could see choppy trading in the $1,750-$1,785.00 range ahead of the jobs report, said Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA.

But it could find support on dips to $1,750.00 as inflation and U.S. fiscal fears increase, Halley added.

Dollar hovers near one-year high while Bitcoin hits $50,000

The U.S. dollar edged back towards a one-year high versus major rivals on Tuesday ahead of a key payrolls report at the end of the week while cryptocurrency Bitcoin hit $50,000 for the first time in four weeks.

The risk-sensitive Australian dollar was among the biggest fallers, with the Reserve Bank of Australia reiterating that it does not expect to raise interest rates until 2024.

The U.S. dollar index, which measures the currency against six rivals, rose 0.13% to 93.932, moving back towards Thursday’s peak of 94.504, its highest since late September 2020.

The index had rallied as much as 2.8% since Sept. 3 as traders rushed to price in tapering of economic stimulus this year and possible rate rises for 2022.

The dollar has also benefited from safe-haven demand amid worries ranging from the risk of global stagflation to the U.S. debt ceiling standoff.

“The dollar started the week on the back foot yesterday, failing to rise on yet another equity sell-off, and suffering from the OPEC+ decision to stick to gradual (oil) supply hikes (400k barrels/day) which sent oil prices (and oil-sensitive currencies) higher,” ING strategists said in a note.

“As highlighted in yesterday’s FX Daily, we think markets will keep buying the dips in the dollar, and this is what appears to have happened overnight, as the greenback rebounded across the board.”

The Aussie dropped 0.1% to $0.7281, retreating further from Monday’s four-day high of $0.73045.

The New Zealand dollar declined 0.34% to $0.6939, also backing away from a four-day peak at $0.6981. The Reserve Bank of New Zealand (RBNZ) decides policy on Wednesday, with markets priced for a quarter point increase to interest rates.

“The RBA’s firm on-hold stance is a weight on AUD,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a report.

For the RBNZ, “with markets already pricing a rate hike cycle, the likelihood of material NZD upside is low”, he said.

The dollar gained 0.25% to 111.19 yen, while the euro weakened by 0.21% to $1.15965.

Sterling edged up 0.15% to $1.3629 and hit a three-week high against the euro at 85.11 pence.

Cryptocurrencies rallied, meanwhile. Bitcoin, the world’s biggest cryptocurrency by market value, hit $50,000 for the first time since Sept. 7.

U.S. oil build on a nearly 7-year high

U.S. oil price stretched their gains into a fourth straight session on Tuesday to their highest settlement since late October 2014, a day after the Organization of the Petroleum Exporting Countries and its allies decided not to accelerate its plan for gradually relaxing production cuts.

While additional oil supply from OPEC+ is bearish on its own, “some had hoped for a much stronger response from OPEC+ members in light of hyper-bullish conditions across global energy markets,” said Robbie Fraser, global research & analytics manager at Schneider Electric.

“With the global crude oil market consistently undersupplied already, record [natural] gas prices across key demand regions are expected to cascade into a strong uptick in heating demand for products like diesel and fuel oils,” he said in a daily note. That is ultimately supporting further draws of combined crude and product stocks, which “already sit well below normal for this time of year.”

West Texas Intermediate crude rose $1.31, or 1.7%, to settle at $78.93 a barrel, Brent crude added $1.30, or 1.6%, at $82.56 a barrel.

Crude oil futures jumped Monday after OPEC+ affirmed its plan to raise output by 400,000 barrels a day in November, in keeping with a plan agreed in July to increase production by that amount in monthly increments until existing output curbs imposed during the pandemic are fully reversed.

“Even after the production hike that has been decided, the oil market is likely to show a sizable supply deficit in the fourth quarter because oil demand is considerably more robust than anticipated,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

Analysts said momentum could continue to take crude prices higher in the near term.

“Oil prices have risen almost uninterruptedly over the past seven weeks, adding more than 25% over that period. That does not mean that the potential of the rally has been exhausted,” with much of the rise marking a recovery from a deep correction, said Alex Kuptsikevich, senior market analyst at FxPro, in emailed comments.

“Oil has lagged noticeably behind [natural] gas and coal in its momentum and potentially has significant upside potential,” he said.

Stocks rebound broadly on Tuesday, Dow rallies 300 points

The major averages rebounded on Tuesday following a technology-centered market rout in the previous session.

The Dow Jones Industrial Average gained 311.75 points, or 0.92%, to 34,314.67. The S&P 500 rose 1.05% to 4,345.72 and the Nasdaq Composite rallied 1.25% to 14,433.83. All three of the major averages are still down for the week after closing off their highs.

Mega-cap technology names were solidly in the green on Tuesday. Netflix rose 5.2%, Amazon gained just shy of 1%. Apple and Alphabet advanced 1.4% and nearly 1.8%, respectively. Facebook shares rose 2% following a 5% slide on Monday due to a whistleblower’s claims and a site outage.

Energy stocks rose again as oil prices continued their climb. U.S. oil prices topped $79 per barrel on Tuesday before settling at $78.93. Chevron advanced 1% and Enphase Energy rose 1.6%.

Stocks tied to the economic recovery, like cruise lines, airlines, retailers and banks, also rose alongside the broader market. Norwegian Cruise Line popped over 1%, and Goldman Sachs rose 3.1%. Wells Fargo added 2%.

While the market has been divided as of late between stocks leveraged to the economic comeback and Big Tech, both cohorts enjoyed gains on Tuesday. All but four Dow members were in the green.

Helping sentiment around the recovery, the Institute for Supply Management services PMI report for September rose to 61.9 from 61.7 in August, 2 points better than expected.

“The slight uptick in the rate of expansion in the month of September continued the current period of strong growth for the services sector. However, ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply,” ISM said in the release.