【Market Morning】Bitcoin hovers around $40,000! Gold eases below $1,900 as rebounding dollar, Oil settles higher

Yesterday Global Financial Market Review 

Gold eases below $1,900 

Gold fell below the key $1,900 per ounce level on Wednesday, as a rebounding dollar and U.S. Treasury yields dimmed its appeal, although continued expectations of a dovish stance from U.S. Federal Reserve kept its losses limited.

The spot gold price closed at $1896.07 per ounce; The spot silver price closed at $27.659.

The rise in U.S. yields and the dollar strength gave some people excuse to get out of gold, said Edward Moya, senior market analyst at OANDA.

“But we are still going to see gold prices continue to rise and $1,950 level seems like a very short-term goal,” Moya added.

Benchmark U.S. 10-year Treasury yields turned higher, increasing the opportunity cost of holding the non-yielding gold, while the dollar index rebounded from lows, making gold expensive for holders of other currencies.

Several Fed officials have reiterated their commitment to a dovish policy stance, while Fed vice chair Richard Clarida on Tuesday said they can curb an outbreak of inflation should it occur without throwing recovery off track.

“With investors still sounding the alarm over inflation, institutional interest in the precious metals complex is likely to continue rising following months of outflows, providing an offsetting force against taper fears for the time being,” TD Securities said in a note.

Market participants are now looking to U.S. gross domestic product, jobless claims and consumer spending data this week.

Bitcoin hovers around $40,000

The price of bitcoin briefly climbed back above $40,000 on Wednesday morning, a week after its price tumbled 30% to around $30,000.

The world’s most popular cryptocurrency traded 6.9% higher at $40,196.06 at 9:00 a.m. ET on Wednesday, according to Coin Metrics data. Bitcoin was last trading about 2.3% higher at $38,469.84 by 4:05 p.m. ET.

Other major digital coins were also in the green Wednesday. Ethereum’s price jumped about 7.2% higher to $2,735.71, while dogecoin’s price was 1.8% higher at 34 cents a coin.

Last week’s crypto sell-off came after authorities in China and the U.S. moved to tighten regulation and tax compliance on cryptocurrencies.

Chinese authorities called on Friday for tighter regulation on crypto mining and trading, reinforcing rules announced in 2017, and the U.S. Treasury announced Thursday that it would require stricter crypto compliance with the IRS.

But the cryptocurrency market is trying to recover some of the losses this week after it plunged again on Sunday to almost $31,000.

Dollar turns upward

The dollar turned upward against major currencies for the first time this week as U.S. yields held steady, Japan’s economic outlook worsened and the Reserve Bank of New Zealand surprised markets by hinting at a higher interest rates.

The dollar index rose as much as 0.4% and crossed above 90 on Wednesday afternoon in New York, but still remained near January lows as the market tapped the brakes on its steady slide since March.

The U.S. dollar index closed at90.06.

The foreign exchange markets are wary of taking trends too far right now because key U.S. economic data is coming out on Thursday and Friday, said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Most important is Friday’s release of an inflation measure watched closely by the U.S. Federal Reserve. If it is stronger than expected, yields could rise and power the dollar higher. If weaker, the Fed’s low interest rate outlook could continue and the dollar’s downtrend could resume.

“Caution ahead of the event risk in the latter part of the week is helping to put a tentative floor under the dollar,” Manimbo said.

Against the Japanese yen on Wednesday, the dollar gained as much as 0.3% and topped 109 yen.

The Japanese government slashed its economic outlook for the first time in three months, citing new weakness in private consumption and business conditions because of coronavirus emergency measures.

The yen is likely to underperform as Japan’s economic outlook worsens, according to Win Thin, global head of currency strategy at Brown Brothers Harriman.

Yen weakness could offset the currency’s usual appeal as a safe haven.

After the New Zealand central bank hinted at a possible interest rate hike by September of next year, the kiwi rose more than 1% against the U.S. dollar

The RBNZ is the second major central bank after the Bank of Canada to nod toward pulling back on easy money policies.

Oil settles higher

Oil prices settled higher on Wednesday as a drop in U.S. crude stockpiles reinforced expectations of improving demand ahead of the peak summer driving season, offsetting worries that a possible return of Iranian supply would cause a glut.

West Texas Intermediate crude settled at $66.029; International benchmark Brent crude closed at $68.602.

Both benchmarks pared losses after government data showed U.S. crude stocks at the Cushing, Oklahoma, storage hub fell last week to the lowest since March 2020. Refiners ramped up utilization rates to pre-pandemic levels.

Prices found some support from lifting of coronavirus curbs.

“An urge to ‘hit the roads’ in heading out on vacations that were precluded by the pandemic last year will be supporting the gasoline market,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

But market players were also closely watching developments in Iranian-U.S. nuclear talks which could lead to lifting sanctions on Iran’s energy industry and releasing Iranian oil on the market.

“Prices should remain supported over the summer with the only thing keeping oil from price increases being the potential return of Iranian oil,” said Andy Lipow, president of Lipow Oil Associates in Houston, Texas.

Iran’s government spokesman Ali Rabiei said he was optimistic Tehran would reach an agreement soon, although Iran’s top negotiator said serious issues remained.

Analysts have said Iran could provide additional supply of about 1 million to 2 million bpd if a deal is struck.

Russia said the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, should consider a possible increase in Iranian output when assessing further steps.

OPEC+ is bringing back 2.1 million barrels per day (bpd) of oil production through July, easing cuts to 5.8 million bpd. Their next meeting is set for June 1.

US stocks stage a rebound

U.S. stocks rose slightly on Wednesday as shares tied to the economic reopening supported the broader market once again.

The S&P 500 climbed 0.2% to 4,195.99, sitting just about 1% from a record high. The Dow Jones Industrial Average rose just 10.59 points to 34,323.05.The tech-heavy Nasdaq Composite added 0.6% to 13,738.00.

Shares of companies linked to a recovering economy gained. Carnival Corp. rose 2.8%. Royal Caribbean jumped 3.9% and brought its gain this week to over 11% after the cruise line operator received approval to begin test cruises with volunteer passengers.

Discovery is up about 3.8% after Amazon announced it will buy MGM Studios for $8.45 billion, raising possible valuations across the entertainment industry. The news follows that of Discovery’s $43 billion deal to merge with WarnerMedia after a spinoff from AT&T.

Ford’s stock rose more than 8% after the automaker announced plans to increase its investment in electric vehicles to $30 billion through 2025 at its investor day Wednesday morning. The company said it expects 40% of its global sales volume to come from electric vehicles by 2030.

“We continue to look for a strong recovery in economic growth in 2021, with low interest rates and moderate increases in inflation,” said Scott Wren, senior global market strategist at Wells Fargo. “This backdrop should favor most equity markets globally, and especially those markets and sectors most closely correlated with economic growth.”

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