【TOP1 Morning】Gold scales 3-1/2 month peak, Oil climbs 1%, Dollar under pressure as yield support fades

Yesterday Market Review

Gold

Gold prices climbed on Monday to their highest in more than three months, with the precious metal appealing to cautious investors as U.S. Treasury yields remained subdued even as stock prices fell on inflation worries.

The spot gold closed at $1866.21 per ounce; The silver closed at$28.135.

“There’s a flight to safety out of the equity markets ... and anticipation that we’re going to continue to see inflation numbers trend much stronger going forward,” said Jeffrey Sica, founder of Circle Squared Alternative Investments.

“The Treasury yields will stay about where they are, and that’s going to further increase the likelihood of investors choosing gold.”

“The Fed is going to continue to hold on to the notion that the increase in inflation has to do more with the reopening of the economies than to do with any real inflation,” Sica said.

Gold is seen as a hedge against rising inflation.

On a technical note, the gold market has breached the 200-day moving average and that was supporting prices further, said Eli Tesfaye, senior market strategist at RJO Futures.

Forex 

The dollar teetered near multi-month lows against European currencies on Tuesday as Treasury yields stall due to renewed expectations that U.S. interest rates will remain low for an extended period.

The U.S. dollar index closed at 90.11.

The growing consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.

“The most important point is where are yields headed,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Yields are capped, reflecting expectations that U.S. monetary policy will remain easy. This places the dollar under downward pressure.”

Against the euro, the dollar traded at $1.2157, close to the weakest since Feb. 26.

The British pound bought $1.4151, near its strongest since late February.

Sterling has been buoyed recently as investors cheer the gradual lifting of strict coronavirus restrictions on economic activity.

The Canadian dollar traded near a six-year high against the greenback, supported by a rise in oil prices.

The dollar held steady at 109.22 yen. The currency pair has been locked in a narrow range as worries about Japan’s slow pace of coronavirus vaccinations offset weakness in the greenback.

Oil

Oil prices rose more than 1% on Monday, lifted by European economic reopenings and rising U.S. demand after prices fell earlier due to surging coronavirus cases in Asia and underwhelming Chinese manufacturing data.

West Texas Intermediate crude settled at $66.337; International benchmark Brent crude closed at 69.289.

The British economy reopened, giving 65 million people a measure of freedom after a four-month COVID-19 lockdown.

With accelerating vaccination rates, France and Spain have relaxed COVID-related restrictions, and on Saturday, Portugal and the Netherlands eased travel restrictions.

The promise of economic growth has supported oil prices in recent weeks, although the pace of inflation has kept many investors concerned that interest rates could rise, which could hit consumer spending.

“The news is not all negative on the demand front as the U.S. saw air travel jump on Sunday to 1.8 million people, the highest total since March 2020,” said Edward Moya, senior market analyst at OANDA.

Investors remained worried about the coronavirus variant first detected in India. Some Indian states said on Sunday they would extend lockdowns to fight the pandemic, which has killed more than 270,000 people there.

Domestic sales of gasoline and diesel by Indian state refiners plunged by a fifth in the first half of May from a month earlier. 

Singapore is preparing to close schools this week and Japan has declared a state of emergency in three more prefectures.

China’s factories slowed their output growth in April and retail sales significantly missed expectations as officials warned of new problems affecting the recovery in the world’s second-largest economy.

Signs of rising supply also capped oil’s gains.

Stocks

Persistent weakness in technology stocks led the major indexes lower on Monday after last week’s hotter-than-expected inflation readings sparked a downturn in equity markets.

The Dow Jones Industrial Average dipped 54.34 points, or 0.2%, to 34,327.79. The S&P 500 lost 0.3% to 4,163.29 as the tech sector pulled back 0.7%. The Nasdaq Composite fell 0.4% to 13,379.05.

Big Tech came under pressure to start the week, with Apple and Netflix each down 0.9%. Microsoft shed 1.2%, while Tesla dropped more than 2% as famed investor Michael Burry revealed a big short position on the electric carmaker.

“Investors should brace for further bouts of volatility, driven by inflation data along with other risks, such as setbacks in curbing the pandemic,” said Mark Haefele, UBS’ chief investment officer. “But we don’t see inflation concerns ending the rally in stocks, which we expect to be led by cyclical parts of the market as the global economic reopening broadens.”

The tech-heavy Nasdaq Composite, which got hit particularly hard by inflation fears, dropped 2.3% last week. 

“Not only are [last] week’s events a warning sign of how uncomfortable inflation prints can become but also a warning sign of how overbought equity markets have become,” Nikolaos Panigirtzoglou, a managing director at JPMorgan, said in a note.

Focus Today

14:00(GMT+8): United Kingdom Employment Change (FEB), Previous: -73K;

17:00(GMT+8): Euro Area GDP Growth Rate QoQ 2nd Est (Q1), Forecast: -0.6%, Previous: -0.7%;

17:00(GMT+8): Euro Area Balance of Trade (MAR), Previous: €17.7B-1.8%;