【TOP1 Morning】Gold hovers near 3-month peak; Dollar languishes at 10-week lows as inflation expectations skyrocket

Yesterday Market Review

Gold

Gold held firm near a three-month high on Monday after last week’s miss on the U.S. jobs growth numbers weighed on the dollar and bolstered expectations that interest rates will remain low.

The spot gold closed at $1835.35 per ounce; The silver closed at$27.276.

“The disappointing U.S. job number ultimately catalyzed a round of algorithmic short-covering,” said TD Securities commodity strategist Daniel Ghali.

Also supporting the precious metal was the return of discretionary capital flowing into gold alongside strong physical demand from China and India last month prior to Indian lockdowns, Ghali added.

U.S. nonfarm payrolls data on Friday showed jobs growth unexpectedly slowed in April, pushing the dollar to an over two-month trough, making gold less expensive for holders of other currencies.

The lower-than-expected job numbers upset investors’ hopes of a roaring recovery in the world’s largest economy and that the U.S. Federal Reserve might tighten policy earlier than expected.

The U.S. central bank has pledged to keep interest rates low until inflation and employment pick up. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.

“What is missing from the recent rise in prices and would be required to revive the rally is the participation of safe-haven seekers,” Julius Baer analyst Carsten Menke said in a note.

 Ether surged past $4,000 Monday to hit a new record high, extending a stunning rally for the world’s second-largest cryptocurrency.

Forex 

The dollar languished at around 2-1/2 month lows on Monday as investors bet that rising inflation would erode the currency’s value as the U.S. Federal Reserve maintains its loose monetary policy.

The U.S. dollar index closed at 90.27

The five-year breakeven inflation rate - which measures expectations of inflation five years out - reached its highest since April 2011 on Monday. The 10-year breakeven inflation rate - a measure of expectations of inflation in 10 years time - rose to its highest since March 2013.

A weaker-than-expected jobs report on Friday helped persuade market participants that the Fed would keep rates low and continue purchasing assets, even if inflation rises. The United States created a little more than a quarter of the jobs that economists had forecast last month and the unemployment rate unexpectedly ticked higher.

The dollar languished at around 2-1/2 month lows on Monday as investors bet that rising inflation would erode the currency’s value as the U.S. Federal Reserve maintains its loose monetary policy.

“I think the biggest problem for the dollar right now is what’s happening to real yields, which continue to tumble. We’re seeing inflation breakevens continue to push higher,” said Daniel Katzive, head of foreign exchange strategy North America at BNP Paribas. “This is creating a lot of vulnerability for the dollar.”

In recent years, rising inflation expectations have helped the dollar because investors have assumed interest rates would be raised in response to higher prices.

The British pound was the biggest gainer among the G10 currencies, rallying as high as $1.416, the highest since Feb. 25. It was last up 1.02% at $1.413. This was despite Scotland’s leader saying that another referendum on independence is inevitable after her party’s resounding election victory.

Oil

Oil ended a few pennies higher Monday, after a ransomware attack forced the shutdown of pipelines supplying around 45% of fuel to the East Coast.

West Texas Intermediate crude settled at $64.839; International benchmark Brent crude closed at $68.135.

Alpharetta, Ga.-based Colonial Pipeline Co., which operates the 5,500-mile Colonial Pipeline system that transports fuel from Gulf Coast refineries to the East Coast, said over the weekend that it was the victim of a cyberattack and had temporarily shut down pipeline activity to contain the threat.

Oil prices pulled back for bit as “talk of traders booking European cargoes for gas to import to the U.S., as well as fears that refining runs in the Gulf Coast will have to slow” due to the pipeline shutdown, said Phil Flynn, senior market analyst at The Price Futures Group.

In an update on Monday, however, Colonial Pipeline said it’s executing a plan to “facilitate a return to service in a phased approach,” with a goal to “substantially” restore operational service by the end of the week.

“The big unknown is how long the shutdown will last, but clearly the longer it goes on, the more bullish it will be for refined product prices,” said Warren Patterson, head of commodities strategy at ING, in a note.

“Stronger prices on the U.S. East Coast will drag refined product prices higher in other regions, given that an extended shutdown will see the East Coast having to turn to waterborne cargoes, particularly from Europe,” Patterson said.

Stocks

Technology shares led the broader market lower on Monday as investors dumped high-flying Big Tech stocks, pushing the Dow Jones Industrial Average and the S&P 500 off their record highs.

The Nasdaq Composite dropped 2.5% to 13,401.86, finishing the day at its session low as Microsoft and Apple lost more than 2% each. Tesla shed more than 6%. The Dow cut gains and turned negative rapidly in the final minutes of the session after climbing more than 300 points to another record high.  The S&P 500 fell 1% to 4,188.43, slipping from a record closing high.

Investors rotated out of growth names, resuming a trend seen earlier this year amid rising fears of inflation and higher interest rates. Facebook dropped more than 4%, while Amazon and Netflix both dropped over 3%. Alphabet dipped more than 2% after a downgrade by Citigroup. Cathie Wood’s Ark Innovation ETF fell 5% to its lowest level since November.

“The tech price action is especially frustrating for many as the thought was Friday would elicit a more sustainable rebound in the space,” Adam Crisafulli, founder of Vital Knowledge, said in a note. “Instead, the group is seeing aggressive selling and accumulating technical damage as prices breach key levels.”

Technology stocks rallied on Friday after a far-weaker-than-expected April jobs report eased concerns about a policy change from the Federal Reserve. Tech stocks have been winning under the low-rates regime during the pandemic.

Utilities and consumer staples were the two biggest gainers on Monday. Earlier in the session, investors had bid up shares that stand to benefit the most from the economic recovery, including energy, financials and industrials, but the sharp sell-off in tech weighed on sentiment and caused these shares to roll over.

Transportation stocks are widely viewed as a barometer of global economic activity. The rebound in these shares signals an accelerating recovery from the pandemic.

Focus Today

17:00(GMT+8): Euro Area ZEW Economic Sentiment Index (MAY), Previous: 66.3;