【TOP1 Evening】Gold recovers as Treasury yields retreat; Dollar buoyed by U.S. recovery hopes

Gold 

Gold prices inched up on Thursday, recovering from a more than two-month low hit in the previous session as U.S. Treasury yields retreated, although a stronger dollar kept bullion's gains in check.

Spot gold rose 0.59% to $1785.78 per ounce, silver fell 0.45% to $27.206 per ounce by 18:00 (GMT+8).

U.S. retail sales rebounded sharply in January and manufacturing activity rose, while U.S. producer prices increased by the most since 2009, suggesting inflation was starting to creep up.

Gold is often viewed as a hedge against inflation.

Federal Reserve officials last month debated how to lay the groundwork for the public to accept higher inflation, minutes of the U.S. central bank's Jan. 26 to 27 policy meeting showed.

U.S. President Joe Biden told 10 top union leaders on Wednesday that his $1.9 trillion coronavirus relief plan and a separate measure to modernize U.S. infrastructure would boost the U.S. economy and create millions of jobs.

Bitcoin surpasses $52,000 for the first time in history, continuing its blistering rally as major companies appear to be warming to cryptocurrencies. 

Bitcoin fell 0.87% to $51835.0 by 18:00 (GMT+8).

Bitcoin could rise to $1 million over the long term to become a reserve currency for the world, according to one asset manager.

But JPMorgan warned of risks ahead as the cryptocurrency continues to rally.

Anthony Pompliano, co-founder and partner at Morgan Creek Digital Assets, said bitcoin could hit $500,000 by the end of the decade. It could eventually reach $1 million per coin, he added, without giving a timeline.

There are caveats, the biggest one being the volatility in bitcoin's price. The digital coin is known for wild swings in price. Nikolaos Panigirtzoglou, global markets strategist at JPMorgan said bitcoin is "five times more volatility than gold."

The key to bitcoin's volatility converging with gold is institutional adoption, the JPMorgan strategist said.

"The faster the pace of institutional adoption, the quicker that convergence in volatility will take place," he said.

Still, there are risks ahead for the current rally. While it has been driven by institutional investors, retail participation has also been high.

Forex

The dollar held its ground on Thursday after its first back-to-back gains in two weeks as upbeat data bolstered expectations that the U.S. economy would recover from the coronavirus pandemic faster than most of its peers.

The U.S. dollar index fell 0.21% to 90.73 by 18:00(GMT+8) on Tuesday.

Government stimulus cheques helped U.S. retail sales rebound sharply in January, while industrial output and producer prices data also provided robust upside surprises.

The euro was little changed at $1.20385 after sliding 0.5% overnight, the most in two weeks.

The dollar was almost flat at 105.845 yen, following a pullback Wednesday after reaching a five-month high of 106.225.

Treasury yields have given the dollar a boost in recent days, with the yield on the benchmark 10-year note rising as high as 1.333% overnight from around 1.20% at the end of last week. It pulled back in Asia on Thursday to 1.2669%.

"Rising U.S. yields have stopped the dollar from declining for now," said Osamu Takashima, the Tokyo-based head of G10 FX strategy at Citigroup Global Markets Japan.

"In the longer term, we remain bearish on the U.S. dollar: we expect a risk-on environment globally and under such circumstances we think downward pressure on the U.S. dollar could revive."

Takashima expect the dollar to rise to as high as 107 yen before slumping to 102 over the next three months.

Crude Oil

Oil prices rose as much as a dollar on Thursday, extending this week's gains and hitting 13-month highs, as a cold snap sweeping Texas and surrounding regions shut at least a fifth of U.S. refining output and a million barrels of crude production.

U.S. West Texas Intermediate (WTI) crude was at $61.406 barrel, fell 0.38%, Brent was down to $63.928 a barrel, fell 0.37% by 18:00(GMT+8).

The Texas energy sector remained without power for a fifth day on Wednesday, after an arctic blast stretched deep into southern states not typically hit by extreme cold.

"A flurry of fresh buying in oil futures was triggered as an unexpected impact on oil production and refiners in Texas from a cold storm raised supply fears of crude and fuel," said Chiyoki Chen, chief analyst at Sunward Trading.

"A larger-than-anticipated draw in the U.S. crude oil inventories also added to supply concerns," Chen said.

Oil prices have rallied over recent weeks on hopes for U.S. stimulus and as global supplies tighten, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+.

But OPEC+ sources told Reuters the group's producers are likely to ease curbs on supply after April given the recovery in prices.

Stocks

Stocks in Asia-Pacific were mixed on Thursday trade.

Nikkei 225 fell 56.10 points or 0.19%, close at 30,236.09.

S&P/ASX 200 rose 0.70 points or 0.01% to close at 6,885.90.

Hang Seng Index fell 489.67 or 1.58% to 30,595.27.

South Korea's Kospi fell 47.07 points or 1.50% to 3,086.66.

Taiwan capitalization weighted stock index rose 62.22 points or 0.38% to 16,424.51.

High prices and vanishingly slim yields on Treasury bonds have provided a key support for equities since the shock of the coronavirus outbreak last year. But, stung by expectations for rising inflation, yields have swept higher, with the 10-year benchmark yield briefly touching 1.3 per cent this week, from a little above 0.9 per cent at the start of the year. Already, February is shaping up to provide one of the biggest monthly increases in yields since 2018.

So far, however, the core personal consumption expenditures price index, the Fed's favoured measure of inflation, stood at 1.5 per cent as of December, below the central bank's long-term target. In January, the core consumer price index, another measure of inflation, was flat compared with the previous month.

For stocks, moderate inflation is typically a good thing. Sean Markowicz, an investment strategist at Schroders, calculates that U.S. equities tend to outperform 90 per cent of the time when inflation is low but rising. Any inflation stemming from a return to normal life would also be a welcome sign that the U.S. economy is slowly dragging itself out of its pandemic-induced slump.

Stocks may also prove more robust than in previous inflationary episodes. Yields remain low by historical standards. Crucially, the Fed has also made it clear it is happy to allow inflation to simmer without raising interest rates. But investors warn too swift an increase in prices could still knock some froth off stocks that are hovering around record highs, particularly in the red-hot tech sector.

Focus Tonight

20:30 (GMT+8): Euro Area ECB Monetary Policy Meeting Accounts;

23:00 (GMT+8): United States Fed Bostic Speech;