【Market Morning】Gold tops $1,800, Dollar soars to more than 1-year high, Dow jumps 200 points to a record

Yesterday Market Review

Gold tops $1,800, posts highest finish since early September

Spot gold prices climbed back above $1,800 an ounce on Friday to post the highest finish since early September.

Data released Friday revealed that the U.S. created more jobs than expected, but a disappointing number of people chose to join the workforce last month and rising inflation dulled prospects for stronger economic growth.

Spot gold for rose 1.3%, to settle at $1,816.80, spot silver rose 1%, at $24.157 an ounce.

U.S. companies added 531,000 jobs in October, with that increase almost double the number of job gains in September and well above the 450,000 new jobs expected by economists polled by The Wall Street Journal.

The Federal Reserve is “always cautious when labor participation is not robust and pays less attention to the headline unemployment rate of 4.6% vs 4.8% — plenty of folks who could return to work [are] not doing so,” said Wright. 

“The tapering implementation is a ways off and not as drastic as some experts had feared or warned of,” he said.

Traders have also focused on inflation, with the consumer price index and producer price index numbers due out next week and “expected to be very high,” said Chintan Karnani, director of research at Insignia Consultants. Gold is often seen a hedge against inflation. “It is all about inflation and its potential impact on Fed’s monetary policy for bullion,” said Karnani.  

Dollar soars to more than 1-year high after jobs data, then pulls back

The dollar jumped on Friday to hit its highest level in more than a year, after data showed stronger U.S. job growth than expected in October, but retreated a bit in late trading as risk appetite improved and stocks rallied.

Nonfarm payrolls increased by 531,000 jobs last month, above the 450,000 forecast, as the latest surge in COVID-19 infections subsided. read more August and September data were revised upward to show an additional 235,000 jobs created over those months.

The US dollar index , which measures the greenback against a basket of six rivals, rose as high as 94.634 after the jobs report, its firmest since Sept. 25, 2020.

The safe-haven currency pulled back a bit as risk appetite improved and stocks staged a broad rally. The dollar was last down 0.096% at 94.234, but was still up around 0.1% for the week, which was marked by a bevy of central bank meetings that forced investors to reset rate hike expectations. read more

On Wednesday, Fed Chair Jerome Powell said he was in no rush to hike borrowing costs, as there was "still ground to cover to reach maximum employment." The central bank did announce a $15 billion monthly tapering of its $120 billion in monthly asset purchases. read more

"The payrolls print is certainly in line with Powell's statement at the Fed press conference, where he noted that job gains of this magnitude are consistent with the notion of making substantial further progress," TD Securities strategists said in a note.

The conditions are in place for a broad grind higher in the dollar, which also meshes with the seasonal trend for November, they said.

One soft spot in the U.S. employment report was a flat participation rate, which could end up spurring the Fed into action faster than expected, said Sal Guatieri, senior economist at BMO Capital Markets

"The trend here could determine the course of Fed policy, as continued weakness in participation will only grease the jobless rate's decline ... which could very well lead to a faster pace of tapering and earlier rate hikes," he said.

The Bank of England's decision on Thursday not to lift rock-bottom benchmark rates proved the biggest shock for markets and pushed sterling to its biggest one-day fall in more than 18 months by as much as 1.6% on the day.

Sterling fell as much as 0.5% on Friday, hitting a fresh one-month low of $1.34250. It was last down 0.07%.

Earlier in the week, the Reserve Bank of Australia also stuck to its dovish stance despite inflationary pressure and held rates. The Aussie reversed declines from the overnight session and was up 0.01% at $0.73995, but was still on track for around a 1.6% weekly fall. read more

European Central Bank President Christine Lagarde pushed back on Wednesday against market bets for a rate hike as soon as next October and said it was very unlikely such a move would occur in 2022. read more

The euro was up 0.08% at $1.15635.

Oil gains as supply concerns loom after OPEC+ output plan

Crude oil prices settled higher on Friday fuelled by renewed supply concerns after OPEC+ producers rebuffed a U.S. call to accelerate output increases even as demand nears pre-pandemic levels.

Brent crude oil rose $2.20 to settle at $82.74 per barrel, while U.S. West Texas Intermediate crude (WTI) gained $2.46 to $81.27.

The Organization of the Petroleum Exporting Countries and allies including Russia, collectively known as OPEC+, agreed on Thursday to stick to their plan to raise oil output by 400,000 barrels per day from December. U.S. President Joe Biden had called for extra output to cool rising prices. read more

OPEC's decision to stay the course and the Biden administration's lack of a substantial response has the oil rally continuing, said Bob Yawger, director of energy futures at Mizuho.

Only a coordinated effort, with China and others involved, would address the lack of barrels in the market, Yawger added.

The White House said it would consider all tools at its disposal to guarantee affordable energy, including the possibility of releasing oil from strategic petroleum reserves (SPR). read more

Sentiment also gained from data showing U.S. employment rising more than expected in October. read more

"Markets know that the release of strategic reserves can only have a temporary bearish effect on prompt prices and is not a lasting solution for an imbalance between supply and demand," Rystad Energy head of oil markets Bjornar Tonhaugen said in a note.

Brent fell for a second straight week, slipping about 2%, while WTI shed 2.7%.

"While factors such as a very cold winter - which may drive the use of more oil for heating - could be supportive for prices, it will be tough for Brent to break above the $87 mark," said Ann-Louise Hittle, vice president, oils research at consultancy Wood Mackenzie, noting a limited capacity for gas-to-oil switching despite the high price of the former.

Dow jumps 200 points to a record on strong jobs report, S&P 500 notches 7th straight day of gains

U.S. stocks rallied to record levels on Friday after the October jobs report came in better than expected, boosting optimism about the economic recovery.

A major development from Pfizer regarding its easy-to-administer Covid-19 pill fueled hope for a smooth reopening further, sending shares of airlines and cruise line operators soaring.

The Dow Jones Industrial Average rose 203.72 points, or nearly 0.6%, to 36,327.95. The S&P 500 gained 0.4% to 4,697.53 for its seventh straight positive day. The tech-heavy Nasdaq Composite edged up 0.2% to 15,971.59. All three major averages reached their respective record closing highs.

The move for stocks came as data showed job gains for the month of October totaled 531,000. Consensus estimates called for 450,000 jobs added, according to Dow Jones. The report also revised September’s disappointing number up to 312,000 job gains from 194,000 previously, and increased its August number by a similar amount.

“Markets are cheering a much better than expected jobs report this morning as nonfarm payrolls smashed expectations,” said Cliff Hodge, chief investment officer at Cornerstone Wealth. “Gains were broad-based across industries, and manufacturing was a real bright spot.”

All three major averages notched a winning week. The S&P 500 gained 2% this week, pushing its 2021 gains to 25%. The Dow rose 1.4% this week, while the Nasdaq rallied nearly 3.1% for its best weekly performance since early April.

Pfizer shares surged nearly 11% after the company said its Covid-19 drug, used with an HIV drug, cut the risk of hospitalization by 89%. Pfizer board member Dr. Scott Gottlieb said Friday that the pandemic could be over in the U.S. by the time President Biden’s workplace vaccine mandates take effect in early January.

The news boosted classic reopening plays. United Airlines shares jumped more than 7%, while American Airlines popped 5.7%. Carnival and Royal Caribbean rallied more than 8% each, while Norwegian Cruise Line advanced 7.8%.

Recovery stock Expedia saw its shares roar higher by 15.6% a day after the company said renewed travel demand boosted its top and bottom lines higher than analysts had expected.

“The labor market recovery is back on track, but it will still take several months to get to maximum employment,” said Edward Moya, senior market analyst at Oanda. “Alongside the Pfizer COVID pill news, this strong [jobs] report should ease some of the supply chain problems and that will make some investors embrace the reopening trade.”