【Market Evening】China turns the screws in crypto crackdown, Dollar hovers above one-week low, Gold prices firm

Gold prices firm as soft dollar

Spot gold prices bounced off 1-1/2-month lows on Friday, buoyed by safe-haven demand as investors grew wary over cash-strapped China Evergrande’s fate while a softer dollar also lifted the metal’s allure for holders of other currencies.

Spot gold was up 0.6% to $1,753.50 per ounce, spot silver climbed 0.9% to $22.68 per ounce.

The US dollar index lingered near a one-week low touched on Thursday.

“Asian investors could be building gold to protect against undesirable developments in the Evergrande saga over the weekend,” said Jeffrey Halley, a senior market analyst for Asia Pacific at OANDA, adding the metal was likely to trade in a $1,740-$1,780 range in the near term.

Asian stock markets were on edge, hurt by persistent uncertainty around the fate of debt-ridden China Evergrande .

Peter Fung, head of dealing at Wing Fung Precious Metals, said uncertainty around Evergrande’s debt also spurred demand for physical gold in top consumer China, near the $1,750 level.

However, bullion prices were expected to come under pressure in the medium term with major central banks signalling tapering of pandemic-era stimulus, analysts said.

The U.S. Federal Reserve signalled an earlier-than-expected rate hike this week.

“We anticipate greater outflows from ETFs and non-commercial spot gold futures,” UBS wrote in a note, adding it expected gold prices at $1,600 by mid-2022.

Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell to the lowest level since April 2020 on Thursday.

Dollar hovers above one-week low as Evergrande questions persist

The dollar hovered above a one-week low versus major peers on Friday, taking a breather after its biggest drop in almost a month overnight, as questions lingered about the fate of property developer China Evergrande Group.

The yen fell to its weakest since mid-August as Treasury yields pushed to the highest since the start of July.

The dollar index, which measures the greenback against a basket of six rivals, rose 0.08% to 93.175 after sliding 0.36% on Thursday and touching the lowest since Sept. 17 at 92.977. That erased gains for the week, and set the index up for a 0.09% decline.

The safe-haven dollar was hurt after Beijing injected new cash into the financial system on Thursday, when Evergrande announced it would make interest payments on an onshore bond.

However, some holders of its offshore bonds said they had not received coupon payments by a Thursday deadline. More dollar bond interest is due next week.

The dollar gained 0.16% to 110.57 yen for the first time since Aug. 11 as benchmark U.S. Treasury yields climbed as high as 1.452% in Tokyo, a level not seen since July 2. Yields last traded at 1.4320%.

Hawkish comments from the Bank of England (BOE) on Thursday pushed up yields globally, a day after the U.S. Federal Reserve said it could start reducing its monthly bond purchases by as soon as November, and that interest rates could rise quicker than expected by next year.

The BOE said two of its policymakers had voted for an early end to pandemic-era government bond-buying and markets brought forward their expectations for an interest rate rise to March.

“Evergrande’s fate remains uncertain, but markets are now less concerned about any potential systemic impact, leaving room for risk assets to rally,” said ING’s Francesco Pesole and Chris Turner in a morning note to clients.

“Improved sentiment has weighed on the dollar, which is also discounting markets’ reluctance to align with the Fed’s Dot Plot.”

Sterling was little changed at $1.3717 after rising as far as $1.3750 overnight for the first time since Sept. 20.

The euro was also mostly flat at $1.1738, after recovering from a more than one-month low of $1.16835 reached on Thursday.

The risk-sensitive Australian dollar was 0.2% lower at $0.7280 after touching a one-week high of $0.73165.

Oil heads for third week of gains as output stumbles

Crude oil prices steadied on Friday near a two-month high of $77.50 a barrel and were headed for a third straight week of gains, supported by global output disruptions and inventory draws.

Brent crude oil was up 222 cents, or 0.28%, at $77.47 and U.S. oil was up 7 cents, or 0.1%, at $73.37 a barrel by 17:30(GMT+8).

Oil prices have been supported in recent weeks by major disruptions in U.S. Gulf Coast production following Hurricane Ida and other storms, disruptions which could last for months in some cases, that have led to sharp draws in U.S. and global inventories.

U.S. crude oil refiners on the hunt for replacements for the Gulf crude have turned to Iraqi and Canadian oil, analysts and traders said.

Some members of the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, have also struggled to raise output following under-investment or delays to maintenance work during the pandemic that began last year.

Brent oil prices could hit $80 a barrel by the end of September due to stock draws, lower OPEC production and stronger demand in the Middle East, analysts at UBS said in a note.

The gains were nevertheless capped by China's first public sale of state oil reserves.

State-owned PetroChina and private refiner and chemical producer Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels, sources with direct knowledge of the auction said.

WoodMac analysts said just before the auction that it would have little impact on the market due to the size of the sale relative to China's consumption and imports.

Asian markets mixed as Evergrande concerns linger

Asian shares were mixed Friday amid concerns over troubled Chinese real estate developer Evergrande and over the pandemic.

Nikkei 225 rose 2.06% to 30,248.81.

South Korea KOSPI fell 0.075% to 3,125.24.

S&P/ASX 200 fell 0.37% to close at 7,342.60.

Taiwan capitalization weighted stock rose 1.07% to 17,260.19.

Hang Seng Index fell 1.30% to 24,192.16.

Masayuki Tsunashima of Mizuho Bank warned risks remained for markets from the potential troubles at Evergrande. Prolonged coronavirus outbreaks also pose risks, he said.

“So, it cannot be ruled out that optimism remains fragile or, at the very least opportunistic as underlying risks have simply not been addressed, much less put to bed,” he said. “And this is consistent with markets remaining prone to volatility and negative shocks.”

China central bank vows crackdown on cryptocurrency trading

China’s central bank renewed its tough talk on bitcoin Friday, calling all digital currency activities illegal and vowing to crack down on the market.

In a Q&A posted to its website, the People’s Bank of China said services offering trading, order matching, token issuance and derivatives for virtual currencies are strictly prohibited. Overseas crypto exchanges providing services in mainland China are also illegal, the PBOC said.

“Overseas virtual currency exchanges that use the internet to offer services to domestic residents is also considered illegal financial activity,” the PBOC said, according to a CNBC translation of the comments. Workers of foreign crypto exchanges will be investigated, it added.

he PBOC said it has also improved its systems to step up monitoring of crypto-related transactions and root out speculative investing.

“Financial institutions and non-bank payment institutions cannot offer services to activities and operations related to virtual currencies,” the bank said, reiterating past comments.

The price of bitcoin sank around 4% on a 24-hour basis, last trading at around $42,378, according to CoinMetrics. Ethereum, the second-largest digital asset, fell over 8% to $2,868.

It’s not the first time China has gotten tough on cryptocurrencies. Earlier this year, Beijing announced a crackdown on crypto mining, the energy-intensive process that verifies transactions and mints new units of currency. That led to a sharp slump in bitcoin’s processing power, as multiple miners took their equipment offline.

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