【Market Morning】Nasdaq closes at record high, Oil prices fall 4% to six-week low, Gold settles at a more than 1-week low

Yesterday Market Review

Gold settles at a more than 1-week low, but inflation remains ‘economic wind of a commodity wildfire’

Gold futures settled at their lowest in more than a week on Friday, on the back of a sharp drop in oil prices and a rise in the U.S. dollar to around the highest level in about 16 months.

“The steep declines in crude oil spooked the raw commodity sector today, including the metals and gold,” Jim Wyckoff, senior analyst at Kitco.com, told MarketWatch. “Crude is the leader of the raw commodity sector, and now it looks like it has topped out, at least for the near term.”

A higher U.S. dollar index was also a “daily negative” for the metals, said Wyckoff.

Dollar was up 0.5%, trading around the highest level since July 2020, as Austria has announced a national lockdown that could stretch to 20 days to help mitigate the spread of COVID-19, and Germany, Europe’s largest economy, isn’t ruling out similar measures to tamp down the spread of the deadly pathogen.

A rising dollar can hurt demand for assets priced in the currency, making them more expensive for buyers using weaker monetary units. On top of that, the dollar tends to attract interest during times of uncertainty about the global economy, weighing on bullion and other commodities.

Spot gold fell 0.5%, to settle at $1,851.60 an ounce.

Reports of rising cases of COVID and lockdowns in Europe were dimming appetite for risk-taking on Wall Street. That provided support for the U.S. dollar — and boosted gold in early dealings, as both are viewed as safe-haven assets.

“Gold seems to be waiting for a fresh directional catalyst as markets await more clues about how the Federal Reserve will manage rising inflation,” said Lukman Otunuga, manager, market analysis, at FXTM.

Longer term, gold will continue to face “multiple headwinds in the form of dollar strength and the [Fed’s] tapering timetable,” he told MarketWatch.

Oil prices fall 4% to six-week low on lockdown worries, but don’t expect much relief at the pump yet

Oil prices fell to a six-week low on Friday as new Covid lockdowns sparked demand concerns just as industry players signal a return of supply.

“The market still remains fundamentally in a good position but lockdowns are now an obvious risk to this if other countries follow Austria’s lead,” said Craig Erlam, senior market analyst at Oanda. “A move below $80 could deepen the correction, perhaps pulling the price back towards the mid-$70 region,” he added.

Both WTI and Brent are on track for a fourth straight week of losses, which is the longest weekly losing streak since March 2020.

“A slight dip in gas demand, possibly due to seasonal driving habit changes, is contributing to some price relief at the pump,” an AAA spokesperson said Monday, before adding that “the ongoing tight supply of crude oil will likely keep gas prices fluctuating, instead of dropping, for some time.”

While Friday’s decline is the largest for oil since July, the commodity’s been trending lower over the last few weeks. The Biden Administration has repeatedly said it’s exploring ways to ease the burden that higher oil is putting on consumers in the form of gas prices, which are hovering around a seven-year high. One option would be for the administration to tap the Strategic Petroleum Reserve.

“If the US presidential administration wants the oil market’s attention, it now has it, as all eyes are on Washington to see whether it will up the ante on China’s SPR release with a follow-up coordinated effort to put further downward pressure on oil prices,” said Louise Dickson, senior oil markets analyst at Rystad Energy. “The US has been publicly probing the oil market, OPEC+ in particular, to ease supply and provide price relief, since the summer, and other importing countries like China, India, and Japan [are] joining the chorus.”

That said, analysts have noted that releasing oil from the SPR likely wouldn’t have much of a long-term impact.

“While such a decision would result in price setbacks, the SPR can only fill the gap during temporary production disruptions, not fix structural issues of underinvestment and rising demand,” UBS said in a Nov. 5 note to clients.

In addition to political headwinds, oil is also facing pressure from an uptick in supply as producers, including in the U.S., bring production online.

Oil’s steadily climbed higher throughout 2021 with WTI hitting a seven-year high of $85.41 on Oct. 25. Since then, it’s down 11.5%. Despite the recent weakness, U.S. oil is still up 55% for 2021.

Dollar rises as COVID concerns spark flight to safety

The dollar rose on Friday as investors sought safe havens after Austria said it would be the first country in Western Europe to reimpose a full lockdown amid surging COVID-19 infections and Germany said it could follow suit, sending the euro lower.

The euro, meanwhile, which has been on its back foot all week, hit a 16-month low amid the COVID surge in Europe and as expectations have grown that interest rates will be hiked faster elsewhere, particularly in the United States.

Federal Reserve Governor Christopher Waller said the U.S. central bank should speed up the pace of tapering its bond purchases to give more leeway to raise interest rates from their near-zero level sooner than it currently expects if high inflation and the strength of job gains persists. 

At a separate event, Fed Vice Chair Richard Clarida said it “may very well be appropriate” to discuss speeding up the Fed’s asset purchase wind-down when it next meets, on Dec. 14-15.

“The greenback right now is certainly benefiting from signs of a strengthening U.S. economy and from safe-haven flows due to renewed worries about the virus,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.

On top of a lockdown, Austria said it will require all its citizens to be vaccinated against COVID-19 from Feb. 1, while Germany’s health minister cautioned lockdown restrictions could return there.

“One thing is certain, if the whole of Europe had to go under lockdown once more, and depending on how long that would last, we would need to rethink our growth scenarios,” said Stephane Ekolo, global equity strategist at brokerage Tradition.

Commodity-linked currencies, such as the Australian, New Zealand and Canadian dollars, often seen as risky, all declined.

The euro has fallen more than 1% this week versus the dollar and was down 0.74% on the day at $1.12895, having earlier touched $1.1248, its weakest level since July 2020.

European Central Bank President Christine Lagarde doubled down on her cautious position on Friday, saying the ECB should not tighten policy as that could undermine recovery.

The Aussie was down 0.58% at $0.72335 and the Kiwi was 0.72% lower at $0.69945.

The Canadian dollar slid 0.42% to 1.2652.

The Japanese yen , also considered a safe-haven currency, strengthened following Austria’s lockdown announcement, and was up 0.22% versus the dollar at 113.99 yen.

Sterling shed some of its recent gains and was down 0.39% at around $1.3448.

Stocks struggle on Friday after Austria lockdown, but tech shares post winning week

Stocks struggled on Friday as concerns over a resurgence of Covid-19 weighed on global markets, though tech shares pushed higher.

The Dow Jones Industrial Average fell 268.97 points, or 0.75%, to 35,601.98. The S&P 500 ticked 0.14% lower to 4,697.96. The Nasdaq Composite advanced 0.40% to 16,057.44.

The S&P 500 still ended the week 0.3% higher. A slew of stellar earnings reports from big retailers and strong U.S. retail data helped the broad-market index fight heightened concerns about inflation and gave it a leg up when Covid worries emerged. The blue-chip Dow fell 1.3% for the week, while the tech-heavy Nasdaq Composite got a 1.2% boost.

Equities took a hit after Austria announced early in the day that it would re-enter a full national lockdown due to a spike in Covid cases. That followed new restrictions for unvaccinated people in Germany, introduced Thursday as a fourth wave sent daily cases to a record high.

The market was predictably spooked, and didn’t seem to take into account developments in vaccines, antiviral pills and other ways to fight the virus, according to Ross Mayfield, investment strategy analyst at Baird. It will probably see through this latest spell though, he added.

“We’ve been through wave after wave of Covid and different variations of it, and we’ve never really seen a big market sell-off because of it,” Mayfield told CNBC. “Part of that is because of the rotation underneath the surface. The other part is that every single time, we learn more and more how to live with the virus and deal with it, and I just don’t think it’s a headline concern for market participants anymore.”

Markets moved downward anyway, though they pared back deeper declines from the morning. Shares of air carriers were among the first to drop. United Airlines fell 2.7%, while Delta fell 1%. Boeing lost 5.7%.

In other travel names, Airbnb dropped 3.8% while Booking Holdings dipped 1.5%. Expedia was also down slightly. Norwegian Cruise Line Holdings was about 2% lower, and Royal Caribbean slipped 2.9%.

The pullback in airline and travel stocks came about a week after the Biden administration lifted pandemic travel restrictions that have barred many international visitors for nearly 20 months. That move was cheered by airlines and other travel companies. But the increase in Covid cases and new restrictions in Europe was damping hopes for an immediate rebound in trans-Atlantic travel, a usually lucrative segment that is key to large carriers’ return to profitability.

Big energy companies dominated the top decliners in the S&P 500 as demand concerns related to new lockdown orders hurt oil prices, which were already in a slump. Devon Energy fell 6.2%, and Hess fell about 5.7%. Baker Hughes and Diamondback Energy weren’t far behind, down more than 5%.

Meanwhile, shares of Moderna jumped nearly 5% after the Food and Drug Administration cleared its vaccine booster shot for all adults in the U.S.

Intuit led the S&P 500 higher after posting stronger-than-expected quarterly results Friday that sent its shares soaring by about 10%. The TurboTax developer also raised its full-year revenue guidance. Nvidia also continued its strong run, with shares rising 4% on continued momentum from its earnings beat earlier this week.

About 95% of S&P 500 companies have handed in their financial results for the third quarter, and 81% of them reported earnings better than Street’s expectations, according to Refinitiv. S&P 500 companies are on track to grow profit by 42.3% year over year.

“Better than expected earnings has been the name of the game this week for the market,” Mike Loewengart, managing director of investment strategy at E-Trade Financial. “While investors may have entered earnings season with some trepidation, there are some clear signs that consumers are resilient and corporate balance sheets are strong despite pricing pressures.”

Tech shares broadly continued their rally as U.S. Treasury yields fell and Covid-concerned investors rotated out of banks, energy companies and other value stocks, and into super-cap tech names. Adobe and Meta Platforms were among the notable gainers in the S&P 500 for much of the day, along with Nvidia. Microsoft and Apple were also higher.