【Market Evening】Gold ticks up, Dollar off to firm start, Oil drifts near 2018 highs

Gold ticks up on weaker dollar

Gold prices inched higher on Monday, as the dollar eased and tamer-than-expected U.S. inflation data allayed fears of an early monetary policy tightening by the Federal Reserve.

Spot gold fell 0.13% to $1776.86 per ounce, silver fell 0.004% to $26.050 per ounce by 18:00 (GMT+8).

“There’s really indecision in the gold market... the jury’s still out (on the Fed’s timeline on tapering),” said IG Market analyst Kyle Rodda.

“On one hand, we’ve to think about normalising policy, but on the other, a lot of Fed speakers are suggesting inflation will be transitory, so we don’t need the Fed to slam on the brakes. And, that is kind of sending mixed signals.”

Gold prices rose as much as 0.8% on Friday after data showed the U.S. personal consumption expenditures price index, the Fed’s preferred inflation measure, came in below expectations.

Minneapolis Fed President Neel Kashkari said he expected recent high inflation readings would not last.

“Reality is the Federal Reserve’s policy tapering is still a distant event, meaning markets can get back into party mode in the short term,” said Michael Langford, director at corporate advisory AirGuide.

Gold prices will consolidate in the short term, with the short-term target at $1,790 an ounce, Langford added.

Investors were also keeping a close watch on the negotiations over an U.S. infrastructure deal.

Dollar off to firm start

The dollar held firm on Monday as investor focus shifted to the U.S. labour market, following softer-than-expected inflation data last week that has done little to soothe concerns about the Federal Reserve dialling down its monetary stimulus.

The US dollar index fell 0.08% to 91.78 by 18:00(GMT+8).

The euro fell 0.1% to $1.1923, as it struggled to recover the $1.20 level, while the dollar hovered at 110.67 yen , not far from Wednesday’s 15-month high of 110.105.

The general mood around an ongoing economic recovery is also solid, as Republican Senate negotiators on an infrastructure deal were optimistic about a $1.2 trillion bipartisan bill after President Joe Biden withdrew his threat to veto the measure unless a separate Democratic spending plan also passes Congress.

That has some reckoning on the dollar falling back into a downtrend if the jobs data passes without surprise.

“Now that the dust has settled, the reality is that U.S. rate hikes are still not close enough to trigger a sustained reversal of reflation trades and (a) stronger dollar,” MUFG analysts Derek Halpenny and Lee Hardman said in a note.

“The latest non-farm payrolls report will provide insight into how long it will take for the labour market to fully recover,” they said. “Absent a significant upside surprise, recent dollar gains should reverse further.”

Oil drifts near 2018 highs 

Oil prices hit and then recoiled from highs last seen in October 2018 on Monday as investors eyed the outcome of this week’s OPEC+ as the United States and Iran wrangle over the revival of a nuclear deal, delaying a surge in Iranian oil exports.

WTI oil was at  $73.769 a barrel, rose 0.05%, Brent was at $75.226 a barrel, fell 0.08% by 18:00(GMT+8).

Oil prices rose for a fifth week last week as fuel demand rebounded on strong economic growth and increased travel during summer in the northern hemisphere, while global crude supplies stayed snug as the Organization of the Petroleum Exporting Countries (OPEC) and their allies maintained production cuts.

Bank of America recently made a bold prediction. The banking giant believes that supply and demand imbalances in the oil market will push crude prices up to $100 a barrel by next year. 

That scenario would undoubtedly be a boon for oil stocks.  Occidental Petroleum (NYSE:OXY), Marathon Oil (NYSE:MRO), and Devon Energy (NYSE:DVN) have some of the best upside potential to triple digit oil. 

Reuben Gregg Brewer believe as an oil driller Occidental Petroleum will clearly benefit from a big rise in this key commodity. But the bigger reason is that such an increase will make it easier for management to deal with the lingering impacts of the Anadarko deal, notably its still heavily leveraged balance sheet.

Neha Chamaria believe that commodity prices don't just drive Marathon Oil's revenue and cash flows, but they're also the single biggest deciding factor behind the company's capital spending and capital allocation plans, which is why the ongoing rally in crude prices is great news for Marathon Oil. 

Marathon expects to generate free cash flow (FCF) worth $1.1 billion this year at an average WTI crude price of $50 per barrel. At $60 a barrel, the company could generate as much as $1.6 billion in FCF! With crude having already surpassed $70 per barrel as of this writing, Marathon should therefore be able to generate even higher cash flows and use the extra cash to pay down more debt and reward shareholders with bigger returns. 

Matt DiLallo believe that investors in Devon Energy reap immediate dividends as oil prices rise thanks to its unique variable dividend framework. The oil and gas producer plans to pay out up to half of the excess cash it generates each quarter to investors via a variable dividend. As oil prices rise, so does that payout.

With oil prices continuing to rise  and close to $75 a barrel right now -- Devon's variable dividend payments should grow even bigger. If oil does indeed hit triple digits again, Devon could pay a monster variable dividend. That potential windfall of cash payments makes Devon an oil stock that investors won't want to miss as oil prices race toward $100.

Asian markets lower after Wall Street recovers to new high

Asian stock markets declined Monday after Wall Street hit a new high as investors looked ahead to manufacturing indicators from Japan, China and South Korea.

Nikkei 225 fell 18.16 points or 0.062%, close at 29,048.02.

S&P/ASX 200 fell 0.70 points or 0.0096% to close at 7,307.30.

Hang Seng Index fell 19.92 points or 0.068% to 29,268.30.

South Korea's Kospi fell 0.95 points or 0.029% to 3,301.89.

Taiwan capitalization weighted stock index rose 87.98 points or 0.50% to 17,590.97.

The European stock opened lower on Monday, At press time: 

FTSE 100 Index fell 30.44 points or 0.43% at 7,105.63.

Germany DAX 30 fell 23.83 points or 0.15% at 15,584.14.

France CAC 40 fell 23.02 points or 0.35% at 6,599.85.

Australia’s pandemic response has been the envy of the world, but the emergence of the Delta variant of the novel coronavirus has put that at risk. The Delta variant is more transmissible than the original strain of the virus and is more likely to cause severe illness.

This means there’s a higher risk of the virus escaping hotel quarantine, and that it will be more difficult to stamp out if it gets into the community. It also means that younger people are now more at risk of getting sick.

The first sign of trouble for the world came in late March, when there was a sudden uptick in new Covid-19 cases in India. Over little more than a month, infections rose from about 20,000 daily cases to more than 400,000 a day. Stories of overwhelmed hospitals and crematoriums made headlines worldwide.

In Europe, it’s forecast that 90% of new infections will be Delta cases by the end of August. Even Israel, which some thought might have reached herd immunity after vaccinating 80% of adults, is facing a new outbreak of the Delta variant. 

Bank of America expects that inflation will continue to likely remain elevated for two-four years, going against the grain of the Federal Reserve's "transitory" position.

Michael Hartnett, one of Bank of America's top strategists, believes that inflation will continue to stay in the 2-4% range for the next two-four years. In a note by BofA, they outlined that U.S. inflation has an overall average of 3% over the past 100 years. It also averaged 2% in the 2010s and 1% in 2020. However, from an annualizing standpoint, in 2021, inflation is 8%.

Hartnett stated that it was "fascinating so many deem inflation as transitory when stimulus, economic growth, asset/commodity/housing inflations (are) deemed permanent."

Focus Tonight

21:00(GMT+8): United States Fed Williams Speech;

22:00(GMT+8): Euro Area ECB Guindos Speech;