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Market News 【Market Morning】Euro jumps to 1-month high, Gold settles back above $1,800, Oil hits two-week low

【Market Morning】Euro jumps to 1-month high, Gold settles back above $1,800, Oil hits two-week low

S&P 500, Nasdaq hit new records on strong earnings; Euro jumps to 1-month high as ECB's lagarde fails to calm rate hike bets; Gold settles back above $1,800 as U.S. GDP disappoints.

TOPONE Markets Analyst
2021-10-29
415

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Yesterday Market Review


Gold ends higher, but stays below the key $1,800 mark


Spot gold futures climbed on Thursday to settle above the $1,800 an ounce level, after data showing growth in the U.S. economy significantly slowed in the third quarter.


Prices for the metal got a lift as third quarter U.S. gross domestic product data missed expectations, easing concerns about a quicker liftoff in U.S. interest rates than expected, Chris Gaffney, president of World Markets at TIAA Bank, told MarketWatch. “Gold is widely seen as an inflation hedge, and rising inflation expectations should lend support to the price of precious metals.”


U.S. gross domestic product growth decelerated to an 2% annualized rate in the third quarter, down from a 6.7% rate in the April-June quarter, the Commerce Department said Thursday. 


The GDP miss will help justify Federal Reserve Chairman Jerome Powell’s arguments that “the economy is not in danger of overheating and interest rates will remain very accommodative for the foreseeable future,” said Gaffney. 


Spot gold price rose  0.2%, to settle at $1,802.60 an ounce spot silver fell 0.3% to $24.12 an ounce.


According to a report from the World Gold Council released late Wednesday, total global gold demand posted a year-over-year decline for the third quarter, with investment in the precious metal down by more than 50% — led by a quarterly outflow in gold-backed exchange-traded funds.


European Union interest rates are “set to remain at the low levels as the ECB research shows inflation will ease next year,” said Gaffney. “This is a very good environment for precious metals — rising inflation expectations with low interest rates.”


Given that, “we could see precious metal prices start marching higher as investors look to add more diversification to their portfolios,” he said.


Looking at the broader picture, “gold investors are realising that the major central banks as a whole will probably not tighten monetary policy too aggressively even if inflation remains elevated,” wrote Fawad Razaqzada, market analyst at ThinkMarkets, in a Thursday note.


“The rationale is that there’s still much spare capacity in the economy and the impact of temporary factors will wane in the months ahead, causing inflation to cool and reduce the need for central banks to tighten aggressively,” wrote Razaqzada.


Euro jumps to 1-month high as ECB's lagarde fails to calm rate hike bets


The euro jumped to one-month highs against the dollar, shrugging off the European Central Bank’s attempts to downplay bets that rising inflation could force into raising rates as soon as next year.

EUR/USD rose 0.68% to $1.1683.


The European Central Bank left interest rates and asset purchases unchanged, as expected, but the ECB governor Christine Lagarde, hinting at higher for longer inflation, struggled to convince traders that bets on sooner rather later rate hikes were misplaced.  


Lagarde conceded that the decline in inflation would “take a little longer than we expected," reflecting energy, recovery demand that is outpacing supply, though added that the medium-term outlook remained intact.


But market participants aren’t convinced and believe the central bank has grown more concerned about inflation.


“In our view, the ECB is clearly crawling back from its fully convinced view of inflation being transitory,” ING said.


”This was among other things reflected in the finer details, for example, the scrapping of a sentence such as ‘Measures of longer-term inflation expectations have continued to increase, but these remain some distance from our two per cent target”  but also in the assessment that wages will rise,” it added.

This subtle change in the central bank’s stance on inflation doesn’t help its case and will continue cast doubt on the ECB’s inflation outlook.


“When you fudge the arguments and interpretations, they take over the driver’s seat. Folks who have been through multiple cycles know full well that markets tend to lead central banks on the way in and the way out more often than not,” Scotiabank said.


Lagarde also pushed back, though unconvincingly, on market bets for the bank to raise its deposit facility rate by 20 basis points to minus 0.3% by December 2022.


“Our analysis certainly does not support that the conditions of our forward guidance are satisfied at the time of liftoff as expected by markets, nor any time soon thereafter,” Lagarde said.


Oil hits two-week low on Iran talks resuming, U.S. crude build


Crude oil prices fell about 1% to their lowest in two weeks on Thursday after Iran said talks with world powers on its nuclear programme would resume by the end of November and on rising U.S. crude inventories.


Brent crude oil settled 26 cents, or 0.31%, lower at $84.32 per barrel, having hit a two-week low of $82.32 earlier in the session and falling 2.1% on Wednesday.


U.S. West Texas Intermediate (WTI) crude settled 15 cents, or 0.18%, higher at $82.81 per barrel, having earlier touched a two-week low of $80.58. The benchmark dropped 2.4% on Wednesday after weekly data showed U.S. crude stockpiles grew more than expected.


Iran’s top nuclear negotiator Ali Bagheri Kani on Wednesday said the country’s talks with six world powers to try to revive a 2015 nuclear deal will resume by the end of November.


A deal could pave the way to lifting harsh sanctions imposed by former U.S. President Donald Trump on Iran’s oil exports in late 2018.


“The market reacts to these headlines, but may be disappointed by how much oil actually returns,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.


U.S. crude oil stocks rose by 4.3 million barrels last week, the U.S. Energy Department said on Wednesday, more than double the 1.9 million-barrel gain forecast by analysts.


The hefty stockbuild was because of a large jump in net imports of crude oil while refinery processing remained sluggish, Citi Research analysts said in a note.


Yet gasoline stocks fell by 2 million barrels to their lowest in nearly four years, even as U.S. consumers contend with rising pump prices.


At the WTI delivery hub in Cushing, Oklahoma, crude storage was at its lowest levels in three years, with prices for longer-dated futures contracts indicating supplies will remain low for months.


Energy information provider Genscape said that as of Oct. 26, tank levels at Cushing had fallen by 2.772 million in the last week, market participants said.


Outbreaks of coronavirus infections in China and record deaths and the threat of lockdowns in Russia, along with rising cases in western Europe, also weighed on prices.


Nasdaq and S&P 500 close at record highs


The US stock market reached record levels on Thursday as strong earnings from major companies bolstered investor confidence.


The S&P 500 added 0.98% to close at a record high of 4,596.42, and the tech-heavy Nasdaq Composite jumped 1.39% to close at its own record of 15,448.12. The Nasdaq also notched an intraday record high. The Dow Jones Industrial Average rose 239.79 points, or 0.68%, to finish at 35,730.48, just under its all-time high.


Ford was a standout, as its shares jumped 8.7% for their best day of the year after reporting blockbuster earnings while also raising guidance. The automaker said increased availability of semiconductors during the quarter allowed it to ramp up production. Merck and Caterpillar also moved higher following earnings beats.


Shares of Apple and Amazon, which report after the bell on Thursday, rose 2.5% and nearly 1.6%, respectively, to boost the Nasdaq. Shares of Tesla climbed 3.7%, continuing a strong stretch after last week’s earnings beat.


Nearly half of the S&P 500 has now reported third-quarter earnings, with a large majority delivering better-than-expected results.


“Earnings have helped and a reminder that US reporting so far has been better than the long-term average in terms of beats,” Jim Reid, head of thematic research at Deutsche Bank, said in a note. “It has still been healthier relative to some of the stagflationary gloom stories seen through September and early October which has perhaps helped the relief rally.”

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