【Market Evening】Euro Aussie sag, Oil falls, Gold firms, Asian markets slip

Gold firms as inflation risks persist

Gold prices rose on Wednesday as concern about inflation kept some investors on edge, while expectations that rising prices may prompt central banks to increase interest rates strengthened the dollar and capped bullion’s advance.

Spot gold rose 0.51% to $1859.79 per ounce and spot silver rose 1.04% to $25.07 per ounce by 17:30(GMT+8).

“Investors are afraid of inflation going out of control and (are) therefore buying gold to hedge against that risk,” said Carlo Alberto De Casa, external analyst at Kinesis Money.

Rate increases remain a potential risk for gold and only a clear break above $1,875 may drive further gains, De Casa added.

Higher interest rates raise the opportunity cost of holding non-interest bearing gold.

Clipping gains in gold, the U.S. dollar, which also contends with gold as a safe-store of value, strengthened after better-than-expected U.S. retail data, making the metal expensive for overseas buyers..

“Prices should come down towards $1,830 because of the rising dollar and statements from Fed members in regards to interest rate hikes in 2022. But don’t expect a severe free fall,” Ajay Kedia, director at Kedia Commodities in Mumbai.

The U.S. Federal Reserve began phasing out its bond-buying this month and expects to end purchases altogether by mid-2022. Its next policy-setting meeting is in mid-December.

“The more positive economic data you get, the more bets for faster interest rate hikes are going to increase,” said Harshal Barot, a senior research consultant for South Asia at Metals Focus.

St Louis Fed President James Bullard urged a quicker end to asset purchases to put the Fed in position to raise rates as soon as the spring.

There is also a focus on a speech by ECB President Christine Lagarde later on Wednesday.

Rate bets rule currency markets as dollar shines; euro, Aussie sag

The U.S. dollar hit a fresh high since March 2017 against the yen and traded close to a 16-month peak versus a basket of major peers on Wednesday, as a run of strong economic data boosted bets for earlier Federal Reserve interest-rate hikes.

Australia’s dollar weakened after wage data failed to strengthen the case for tighter monetary policy.

The greenback rose as high as 114.975 yen before last changing hands at 114.755.

The dollar index - which measures the currency against six rivals including the yen - traded at 95.871, not far from the overnight high of 95.978, a level not seen since July of last year.

U.S. retail sales rose more than expected in October, a report showed Tuesday, building on momentum from last week when data showed consumer prices surging at the highest rate since 1990.

St. Louis Fed president James Bullard said on Tuesday that the central bank should “tack in a more hawkish direction” over its next couple of meetings to prepare in case inflation does not begin to ease.

Money markets are currently pricing in a high probability of a Fed rate increase in June, followed by another in November.

“The U.S. economy looks to have shaken off the Delta soft patch and is regaining forward momentum, albeit with heavy ongoing supply chain issues and reopening bottleneck,” Westpac strategists wrote in a client note, recommending buying the dollar index on any dips into the low 95 level.

“Hawkish comments from Bullard - voter next year - will leave markets comfortable pricing in Fed hikes (in) 2022, a stark contrast with Europe where renewed virus suppression measures are being implemented.”

The euro languished near a 16-month low to the dollar as Europe suffered from worries about growth amid a renewed surge in COVID-19 cases.

Germany’s parliament is due to vote on Thursday on stricter measures to deal with the outbreak, while Austria imposed a lockdown on unvaccinated people at the start of the week. France, the Netherlands and many countries in Eastern Europe are also struggling to contain infections.

European Central Bank President Christine Lagarde speaks later on Wednesday, after saying on Monday that tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery.

ECB board member Isabel Schnabel also speaks at a separate event.

One euro last bought $1.13245, mostly flat from Tuesday, when it dipped as low as $1.1309 for the first time since July 2020.

In contrast, sterling was firm after the release on Tuesday of data that showed British employers hired more people in October after the government’s job-protecting furlough scheme ended.

Traders will be parsing consumer price data later Wednesday for further support for Bank of England tightening.

Sterling was little changed at $1.34335 after rising as high as $1.3472 overnight.

It strengthened slightly to 0.8429 per euro, edging back toward its strongest level this month at 0.84265, reached on Tuesday.

The Aussie sank 0.24% to $0.7287 after wage growth data came in as economists expected on Wednesday, doing nothing to sway a dovish Reserve Bank of Australia.

On Tuesady, RBA governor Philip Lowe again pushed back against market pricing for a rate hike next year, saying recent data and forecasts did not warrant such a move.

Oil falls as U.S. gasoline stock draw raises prospect of SPR release

Oil prices dropped on Wednesday after U.S. gasoline stocks fell more than expected last week, which could heighten pressure on the Biden administration to release oil from emergency reserves to cap soaring gasoline prices.

Brent crude oil fell 0.72% to $80.96 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 0.82%, to $78.89 by17:30(GMT+8).

U.S. President Joe Biden has been considering releasing oil from the Strategic Petroleum Reserve (SPR) to cool gasoline prices, which hit a record high at California pumps this week. Lawmakers, however, have mixed views on whether it is needed.

U.S. House Majority Leader Steny Hoyer said late on Tuesday he did not agree with Senate Majority Leader Chuck Schumer’s call on Sunday for tapping the SPR to lower gas prices, saying the reserve was there to fill a crude oil supply gap in times of emergency.

Analysts say SPR oil would only offer temporary relief and what is needed is increased supply from U.S. shale producers or the Organization of the Petroleum Exporting Countries (OPEC).

“It seems the energy market is convinced that even if the U.S. resorts to tapping the Strategic Petroleum Reserve, the benefits would be minimal ... to the U.S. consumer,” OANDA analyst Edward Moya said in a note.

Data from the American Petroleum Institute industry group showed gasoline stocks fell by 2.8 million barrels for the week ended Nov. 12, according to market sources.

The drawdown was much bigger than the 600,000 barrel decrease that 10 analysts polled by Reuters had expected.

Crude inventories rose by 655,000 barrels, the market sources said. That was less than analysts’ expectations for a build of 1.4 million barrels.

Asian markets slip despite Wall Street’s gains after Biden-Xi talks

Asian shares slipped Wednesday despite a rally on Wall Street. In Japan, the benchmark reversed earlier gains that had come on the yen trading lower recently, boosting the profits of exporters.

Nikkei 225 fell 0.40% to 29,688.33.

Hang Seng Index fell 0.25% to 25,650.08.

Taiwan capitalization weighted stock rose 0.40% to 17,764.04.

S&P/ASX 200 fell 0.68% to 7,369.90.

South Korea KOSPI fell 1.16% to 2,962.42.

Virtual talks between U.S. President Joe Biden and Chinese President Xi Jinping late Monday U.S. time appeared to signal a step in the right direction but failed to produce any major, market-boosting news.

“Any concrete development from the meeting still awaits to be seen, but the amiable approach thus far in addressing issues from both parties pares down the risks of political tension in markets,” said Yeap Jun Rong, market strategist at IG in Singapore.

Stocks closed higher on Wall Street as investors reviewed solid earnings reports from big retailers and a surprisingly strong report on consumer spending.

The government reported that Americans largely shrugged off higher prices last month and stepped up their spending at retail stores and online. The Commerce Department said retail sales rose 1.7% in October. That’s the biggest gain since March and up from 0.8% in the previous month.

“It reiterates the strength of the U.S. consumer, but you have to wonder a bit as inflation expectations rise, are people rushing to get in front of that,” said Mike Stritch, chief investment officer at BMO Wealth Management.