【TOP1 Morning】Gold firms as U.S. yields ease, Oil dips despite declining inventory; Dollar hits two-week high

Yesterday Market Review

Gold

Gold firmed on Wednesday as the dollar and U.S. Treasury yields eased, while palladium held near record highs propped up by supply constraints.

The spot gold closed at $1786.87 per ounce; The silver closed at$26.429.

“Treasuries are coming in line a little bit so you’re getting a bounce in gold,” said Bob Haberkorn, senior market strategist at RJO Futures.

"Gold market is kind of discounting what Janet Yellen said yesterday, and seeing the fact that the Fed probably isn’t in a position to raise rates at this point," Haberkorn said, adding however the U.S. Treasury Secretary’s statement on rates “threw some shade on the market.”

Yellen initially said rate increases may be needed to stop the economy overheating as U.S. President Joe Biden’s spending plans boost growth, but later downplayed the remarks and said she saw no inflation problem brewing.

The benchmark 10-year yield backed off from earlier highs, while the dollar index eased off a two week-high, helping lift bullion.

Higher yields threaten gold’s appeal as an inflation hedge as they increase the opportunity cost of holding non interest-bearing bullion.

“With the Fed pledging to keep rates lower for longer and outlining a higher tolerance for inflation with its new framework, commodity funds could see increasing inflows from investors looking to hedge against inflation risk, which is likely to spill over into gold,” Metals Focus said in a note.

Forex 

The dollar hit its highest in over two weeks on Wednesday, extending a rally as chatter about the possibility of higher U.S. interest rates and a sell-off in tech stocks soured risk sentiment to the benefit of the safe-haven currency.

The U.S. dollar index closed at 91.27 on Wednesday.

The bounce was partly sparked by comments from U.S. Treasury Secretary Janet Yellen that rate hikes may be needed to stop the economy overheating.

Yellen later downplayed their importance, but even the slightest mention of U.S. tightening has an outsized impact in markets that have become so dependent on monetary stimulus.

So far, Federal Reserve Chair Jerome Powell has argued the labour market is still far short of where it needs to be to start talking of tapering asset buying.

On the data calendar, traders will look to the ADP payroll numbers that precedes Friday’s jobs numbers, and the ISM services index for Apri.

“Two strong releases may cast further doubt on the ability of the Fed to hang on to its dovishness and could help the dollar stay supported today,” said Francesco Pesole, G10 FX strategist at ING in a note.

“Low-yielders may be the main underperformer if the dollar inches higher, while activity currencies may still benefit from the supported reflationary story and some evidence of vaccination rollout gathering more pace in key regions of the world.”

The U.S. dollar last traded flat to the yen at 109.29 and again needs to break resistance at 109.61 to encourage more speculative bids.

Sterling traded 0.24% higher at $1.3918 a day ahead of the Bank of England meeting, where it is expected by some to announce a tapering of its bond-buying programme.

Oil

Oil prices drifted lower on Wednesday after two days of gains despite U.S. crude stocks falling more sharply than expected, as traders used the weekly inventory figures as an excuse to pull back from the recent rally.

West Texas Intermediate crude settled at $65.231; International benchmark Brent crude closed at $68.475.

U.S. crude inventories fell by 8 million barrels in the week to April 30 to 485.1 million barrels, exceeding expectations for a 2.3 million-barrel drop, the Energy Information Administration said. Exports rose to 4.1 million bpd, the most since March of last year, and refining output was at its highest since that month as well.

Pandemic-related restrictions in the United States and parts of Europe are easing, but infections are still on the rise in India and Japan.

The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts. In the United States, more than 40% of U.S. adults have received at least one shot and more than half of adults in the United Kingdom, although numerous nations worldwide have only vaccinated a small percentage of their population.

“Refining activity should only increase from here on out, while Asian demand is set to bolster U.S. oil exports going forward,” said Matt Smith, director of commodity research at ClipperData.

Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.

India, the world’s third-largest oil consumer, is battling a surge in COVID-19 infections. The country’s oil imports in March rose from the previous month, buoyed by an upturn in economic activity, but are expected to drop again because of renewed lockdowns.

“If we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said.

Stocks

U.S. stocks rebounded on Wednesday as strong earnings results and economic optimism pushed the Dow Jones Industrial Average to a record high.

The blue-chip Dow gained 97.31 points, or 0.3%, to 34,230.34, hitting a record closing high. The S&P 500 rose 0.1% to 4,167.59. The Nasdaq Composite fell 0.4% to 13,582.42, however, as Amazon, Netflix and Facebook all dipped more than 1%.

Amazon CEO Jeff Bezos this week sold nearly $2 billion worth of shares in his company, according to filings with the Securities and Exchange Commission compiled by OpenInsider.

Bezos sold roughly $684 million worth of Amazon shares on Tuesday, the filings show, after unloading about $1.27 billion worth of stock on Monday. That means he’s sold about $1.95 billion worth of Amazon shares over the past two days.

Representatives from Amazon weren’t immediately available to comment on the latest sale.

General Motors shares climbed over 4% after earnings blew past expectations. Activision Blizzard traded higher by 3% after strong results.

Commodity stocks jumped with the Energy Select Sector SPDR and the Materials Select Sector SPDR notching the biggest gains among sectors. Chevron and Dow were the two biggest gainers in the Dow Jones Industrial Average. ConocoPhillips popped more than 5% thanks in part to an upgrade to buy from Bank of America.

On the data front, private payrolls rose by 742,000 jobs in April, according to a Wednesday report from ADP. This result was below expectations of 800,000 jobs from economists surveyed by Dow Jones. ADP did revise its March report upward by 48,000 jobs.

Meanwhile, the IHS Markit U.S. services purchasing managers index came in at 64.7 for April, ahead of the projected reading of 63.3, according to economists surveyed by Dow Jones. 

The Biden administration announced Wednesday that it supports waiving intellectual patent protections for Covid-19 vaccines, as countries struggle to manufacture the life-saving doses.

Stocks of major pharmaceutical companies that have produced vaccines fell following the news. Moderna dropped more than 6%.

Exercise equipment maker Peloton dropped more than 14% after announcing a recall of its treadmill product due to safety concerns.

Focus Today

17:00(GMT+8): Euro Area Retail Sales YoY (MAR), Forecast: 9.6%, Previous: -2.9%;

19:00(GMT+8): United Kingdom BoE Interest Rate Decision, Forecast: 0.1%, Previous: 0.1%;

20:30(GMT+8):United States Continuing Jobless Claims (24/APR), Forecast: 3620K, Previous: 3660K;