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Market News 【Market Evening】Gold gains are limited, Oil hits near three-year high, Dollar in retreat

【Market Evening】Gold gains are limited, Oil hits near three-year high, Dollar in retreat

Powell says Fed won't raise rates on 'fear' of inflation; Euro-Dollar bear trend ahead forecasts BNP Paribas, Euro will drop to 1.17 at the end of the year; GM, Ford stocks are looking better because car prices are strong.

TOPONE Markets Analyst
2021-06-23
464

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Gold gains are limited


Gold prices firmed on Wednesday after U.S. Federal Reserve Chair Jerome Powell’s pledge to keep interest rates near zero for some time pushed the dollar towards a one-week low.


Spot gold rose 0.25% to $1782.63 per ounce, silver rose 0.81% to $25.939 per ounce by 18:00 (GMT+8).


Gold tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion. It fell 6% last week after the Fed struck a hawkish tone at its meeting and signalled interest rate hikes in 2023.


Powell’s comments on Tuesday reaffirmed intent to encourage a “broad and inclusive” job market recovery, and not raise interest rates based only on fears of coming inflation.


“Economic numbers are just showing a sign of recovery... can’t say they will be consistent in the coming period. That has been a support for gold,” said Ajay Kedia, director at Kedia Commodities in Mumbai.


France and Germany enjoyed booming business activity in June, according to preliminary composite Purchasing Managers’ Indexes (PMI) compiled by IHS Markit. U.S. flash PMIs are due later in the day and are expected to stay at elevated levels.


“A tapering timetable is still uncertain but is being discussed, which is a downside risk for gold prices,” they told clients.


Dollar in retreat


The U.S. dollar remained on the back foot against major peers on Wednesday after a two-day drop as U.S. Federal Reserve officials including Chair Jerome Powell reaffirmed that tighter monetary policy was still some way off.


The US dollar index rose 0.03% to91.74 by 18:00(GMT+8).


Overnight, both Powell and New York Fed President John Williams warned that the economic recovery requires more time before a tapering of stimulus and higher borrowing costs are appropriate.


“Latest smoke signals from the Fed ... all point to September as the meeting when the Fed is, on current trends, most likely to declare that substantial further progress towards their goals has been achieved, or is being achieved,” Ray Attrill, head of foreign-exchange strategy at National Australia Bank in Sydney, wrote in a client note, forecasting tapering likely won’t start until early next year.


“Their comments have seen markets row back somewhat from their largely position-driven convulsions last week.”


The Aussie dollar, often viewed as a proxy for risk sentiment, was largely flat at $0.7546, up from a recent low of $0.7478.


The euro was little changed on Wednesday at $1.19340, after rebounding from as low as $1.18470 at the end of last week.


The Euro is tipped to enter a 'bear trend' against the Dollar in the second half of the year by foreign exchange strategists at French investment bank BNP Paribas, although those holding euros will take heart from Eurozone consumer confidence that is approach record highs.


The European Central Bank (ECB) is expected by BNP Paribas to only raise interest rates in 2024, two years in the wake of the Fed.


The Fed's early mover advantage in this regard is expected by foreign exchange strategists at the bank to pressure the Euro, which they say has now likely peaked.


"We project the start of a gradual bear trend in H2 2021, with the pair falling to 1.17 by end-2021 and 1.14 by end-2022. Widening US versus eurozone yield spreads are likely to weigh on EURUSD, particularly in 2022 when US front-end yields begin to rise," says Lynton-Brown.


Oil jumps to near three-year high


Oil rose above $75 a barrel on Wednesday, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.


U.S. West Texas Intermediate (WTI) crude was at $73.268 a barrel, rose 0.47%, Brent was down to $74.823  a barrel, rose 0.61% by 18:00(GMT+8).


The American Petroleum Institute industry group reported crude stocks fell by 7.2 million barrels for the week ended June 18, according to two market sources.


If official figures from the U.S. Energy Information Administration due later on Wednesday confirm the drawdown, it would be the fifth straight week of declines, showing the U.S. market tightening, ING Economics said in a note.


All eyes are on what the Organization of the Petroleum Exporting Countries and allies, together known as OPEC+, plan to do when they meet on July 1 as they gauge the demand recovery.


OPEC+ is discussing a gradual increase in supply from August, but no decision has been made yet on the exact volumes, two OPEC+ sources said on Tuesday.


“The producer group once again faces some tough decisions as the market continues to show tightness. Global progress in COVID-19 vaccination campaigns have seen consumer mobility across U.S., China and Europe recover sharply,” ANZ commodity analysts said in a note.


“However the prospect of Iranian oil hitting the market in the near term has seen OPEC remain cautious about increasing supply,” they said.


A retreat in the U.S. dollar from a two-month high hit late last week has also helped prop up oil prices, as a weaker greenback makes oil less expensive in other currencies.


Asian stock mixed


Asia-Pacific stock were mixed on Wednesday.


Nikkei 225 fell 9.24 points or 0.032%, close at 28,874.89.

S&P/ASX 200 fell 43.70 points or 0.60% to close at 7,298.50.

Hang Seng Index rose 507.31 points or 1.79% to 28,817.07.

South Korea's Kospi rose 12.31 points or 0.38% to 3,276.19.

Taiwan capitalization weighted stock index rose 261.16 points or 1.53% to 17,336.71.


European stock opened mix on Wednesday, At press time: 


FTSE 100 Index rose 11.39 points or 0.16% at 7,101.40.

Germany DAX 30 fell 97.76 points or .63% at 15,538.57.

France CAC 40 fell 35.37 points or 0.53% at 6,576.13.


Car sales are rebounding, pricing is strong, and gains in stock prices can continue according to Wall Street. Barclay’s analyst Brian Johnson is the latest to weigh in with an upbeat view.


On Tuesday, he increased his price target for stock in General Motors (ticker: GM) to $70 from $74 and boosted his call on Ford Motor (F) to $17 from $15. GM was trading marginally higher at $59.33 near midday, while Ford had gained 0.8% to $14.89. 


Johnson rates both stocks Buy.


Car pricing through mid-June has been better than he expected. “Indeed, mid-month data show a step-up in average transaction prices and a step-down in incentive spending,” or discounts, wrote the analyst.


Higher new-car prices are good for any auto maker, but not just because manufacturers can sell their vehicles for more. Rises in new-car prices mean used vehicles are worth more. Both companies’ financing units benefit if residual values of cars coming off lease are higher.


Target prices have been rising for both stocks across the Street this year. The average call on Ford stock has gone from about $9 to $15 a share. GM stock’s average target price has gone from about $52 to $72.


Johnson is a little more bullish than average regarding both stocks.


Among his peers, GM is a more popular stock. About 90% of analysts covering GM shares rate them Buy, compared with about half of those tracking Ford. The average Buy-rating ratio for stocks in the S&P is about 55%.


Ford has the edge on GM in terms of stock performance though. Year to date, Ford shares are up about 70%, while GM has gained 42%.


Focus Tonight


21:45(GMT+8): United States Markit Manufacturing PMI Flash (JUN), Forecast: 61.5, Previous: 62.1;


22:30(GMT+8): United States EIA Crude Oil Imports Change (18/JUN), Previous: -0.845M;

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