【Market Morning】Gold settles back above $1800, Stocks can’t shake off downward pressure

Yesterday Market Review

Gold settles back above $1800

Spot gold price ended higher on Tuesday, finding support as the U.S. dollar weakened after a report showing U.S. inflation rose in August at the slowest pace in seven months.

Spot gold rose rose0.7%, to settle at $1,807.10 an ounce, Spot silver settled up by 0.4% at nearly $23.89 an ounce.

The consumer-price index climbed 0.3% in August,  compared to a rise of 0.5% in July, the government said Tuesday. Economists polled by the Wall Street Journal estimated the cost of living, as measured by CPI, rose 0.4% in August.

The lower-than-expected consumer price index number has resulted in a weaker U.S. dollar, Chintan Karnani, director of research at Insignia Consultants, told MarketWatch. That supports dollar-denominated gold prices.

The data also eased expectations for an early taper by the Federal Reserve, he said.

“Every U.S. economic data release is important as traders will use it to judge the strength for next quarter,” said Karnani, adding that Thursday’s U.S. August retail sale numbers will impact gold’s price, as well as the U.S. dollar index.

“Traders are looking at clues for trends in the U.S. economy in the final quarter of the year,” and making readjustments to their fourth quarter portfolio based on incoming U.S. economic data releases, he said.

n addition to the CPI data itself, the Fed next week will likely use inputs, including the CPI report, to determine its plans for scaling back COVID-era bond purchases which have been in force to help provide liquidity to markets that were gummed up during the worst of the pandemic in the spring of 2020.

“The yellow metal will remain sensitive to US economic releases this week, especially today’s inflation reading, with any delay to tapering being a positive catalyst in the coming weeks,” wrote Craig Erlam, senior market analyst at Oanda Corp., in a research note.

Dollar retreats after U.S. inflation slows

The dollar fell against major currencies on Tuesday after data showed a less-than-expected rise in U.S. inflation last month, creating uncertainty about the timing of the Federal Reserve’s tapering of asset purchases.

The US dollar index was slightly down at 92.601, moving away from a more than a two-week high on Monday.

Several Fed officials have suggested the U.S. central bank could reduce its buying of debt securities by the end of the year, but said an eventual interest rate hike would not happen for some time.

The Fed will hold a two-day monetary policy meeting next week, with investors keen to find out whether a tapering announcement will be made.

“The softer inflation prints caused investors to push back on bets that the Fed could move sooner to taper bond purchases. Easing inflation would take the heat off the Fed to move prematurely,” said Fiona Cincotta, senior financial markets analyst at City Index.

She also cited U.S. core producer prices (PPI) data for August released last week, which also rose at a slower pace. Excluding the food, energy and trade services elements, producer prices rose 0.3% last month, the smallest gain since last November. The so-called core PPI shot up 0.9% in July.

“So the evidence does appear to be building that peak inflation has passed. That said, supply chain bottlenecks are expected to persist for a while so it’s unlikely that either PPI or CPI will drop dramatically or rapidly,” Cincotta added.

The euro to dollar was flat at $1.1807.

Risk appetite soured on Tuesday as well, with Wall Street shares down while U.S. Treasury prices were up sharply, pushing yields lower.

Investors looked past decelerating inflation and focused on uncertainties about U.S. growth now clouded by the economic impact of the Delta variant.

Versus another safe-haven, the Japanese yen, the dollar fell 0.4% to 109.615 ye

In other currencies, the Australian dollar fell to a two-week low after Reserve Bank of Australia Governor Philip Lowe painted a very dovish policy outlook with no rate hikes on the horizon until 2024. 

Oil settles unchanged as latest storm spares U.S. energy sector

Crude oil prices ended largely unchanged on Tuesday as tropical storm Nicholas brought heavy rain and power outages in Texas but caused less damage to U.S. energy infrastructure than Hurricane Ida caused earlier this month.

Brent crude oil rose 13 cents, or 0.2% to $73.64 a barrel, having gained 0.8% the previous day. U.S. West Texas Intermediate (WTI) crude was unchanged at $70.45, after rising 1.1% on Monday.

Evacuations were underway on Monday from offshore U.S. Gulf of Mexico oil platforms as onshore oil refiners began preparing for Tropical Storm Nicholas, which was heading towards the Texas coast with 70 miles per hour(113 kph) winds, threatening coastal Texas and Louisiana still recovering from Hurricane Ida.

“Concerns over Nicholas prompted buying as it is likely to hit the area devastated by Ida though the force is not expected to be as strong as Ida,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

More than 40% of the U.S. Gulf’s oil and gas output remained offline on Monday, two weeks after Ida slammed into the Louisiana coast, according to offshore regulator Bureau of Safety and Environmental Enforcement (BSEE).

“But market upside will be limited as U.S. summer driving season waned and there are potential supply increases from planned releases of oil from strategic reserves in the United States and China as well as the possible resumption of oil export by Iran,” Kikukawa said.

The U.S. government agreed to sell crude oil from the nation’s emergency reserve to eight companies including Exxon Mobil, Chevron and Valero, under a scheduled auction to raise money for the federal budget.

Traders noted China’s planned release of oil from strategic petroleum reserves (SPRs) could boost supplies available in the world’s the second biggest oil consumer.

Hopes of fresh talks on a wider nuclear deal between Iran and the West were raised after the United Nations atomic watchdog reached an agreement with Tehran on Sunday about the overdue servicing of monitoring equipment.

Adding to pressure, U.S. crude oil output from seven major shale formations is expected to rise by about 66,000 bpd in October to 8.1 million bpd, the highest since April 2020, according to the Energy Information Administration’s monthly drilling productivity report.

The Organization of the Petroleum Exporting Countries (OPEC), meanwhile, trimmed its world oil demand forecast for the last quarter of 2021 due to the delta coronavirus variant. 

Dow sheds 290 points, S&P 500 closes lower

U.S. stock indexes closed lower Tuesday, giving up gains earlier in the session after a better-than-feared inflation reading and falling back into their September doldrums.

The Dow Jones Industrial Average shed 292.06 points, or 0.8%, to 34,577.57. The S&P 500 dipped nearly 0.6% to 4,443.05 and the Nasdaq Composite ticked about 0.5% lower to 15,037.76.

Stocks popped at the open after the August consumer price index, while still showing a significant jump in inflation, came in less than expected. However, the stock averages turned lower roughly half an hour into trading.

Shares linked to the economic recovery dropped. Bank of America lost 2.6%. General Electric took industrial shares into the red, closing 3.9% lower.

“What we need to see to be fundamentally markets supportive is a continued easing in the inflation piece without deterioration in the economic outlook,” said Liz Ann Sonders, Charles Schwab chief investment strategist.

Apple shares closed nearly 1% lower after the company unveiled the new iPhone 13 at its annual fall product event, its stock movement in line with historical patterns.

Meanwhile, investors crowded into some of their favorite tech bastions with Microsoft ending the day 0.9% higher.

Stocks have been under pressure since August’s jobs report, released by the Labor Department on Sept. 3, missed expectations. 

“The next couple of weeks, economic data points become even more important to see whether it confirms the the weakness that we saw on the August jobs report or starts to suggest that maybe we’re seeing an improvement,” Sonders said.

The S&P 500 and the Nasdaq Composite are down more than 1% in September, while the Dow is down 2.2% for the month. For the past two days, stocks rolled over from intraday highs earlier in the session.

September is historically the worst month for markets with an average decline of 0.56% in the month dating back to 1945, according to CFRA.

The Federal Reserve begins a two-day policy meeting on September 21. The central bank is monitoring key economic indicators like inflation readings as it decides when to taper its pandemic-era easy monetary policy.

“I believe the Fed will talk about tapering in September and not announce it until the November meeting and then put it in place before the end of the year,” said Art Hogan, chief market strategist at National Securities.

In Washington, House Democrats on Monday proposed new tax hikes on corporations and wealthy people to fund a $3.5 trillion social safety net and climate policy bill.

“I think the market is starting to come to grips with the idea there is going to be a tax hike and the next round of stimulus is actually a tightening of fiscal policy, not stimulus, not through the lens of an equity investor,” said Barry Knapp, Ironsides Macroeconomics managing partner.