【Market Morning】Nasdaq hitting new high, Gold prices end lower, Dollar softens after ADP, Oil steadies

Yesterday Market Review

Gold prices end lower

Spot gold price ended lower on Wednesday, with a weaker-than-expected U.S. private-sector jobs data only providing a temporary boost to prices for the haven metal, as investors expected the jobs report due on Friday to provide more definitive direction guidance for gold.

Spot gold lost 0.1%, to settle at $1,816 an ounce and spot silver rose 21 cents, or 0.9%, to $24.22 an ounce.

Investors are attuned to the labor market data because it could help determine the pace and timing of the Federal Reserve’s tapering of purchases of $80 billion in Treasurys and $40 billion in mortgage-backed securities, which have helped to support financial markets in the U.S. during the worst of the COVID pandemic.

However, the recovery from the pandemic, amid the spread of the coronavirus delta variant, has raised questions about the need for ongoing easy money policy.

The dollar eased a little following the release of the ADP data, which “gave gold prices a small boost, but we’re talking very small numbers,” said Craig Erlam, senior market analyst at Oanda, in a market update.

Businesses in the U.S. created a lackluster 374,000 new jobs in August, a new ADP survey found.

With the private-sectors jobs data out of the way, that “leaves gold to ease its way into the jobs report at the end of the week, when I’d expect to see a much greater response to the data,” said Erlam.

“With gold hovering so close to the July highs around $1,833, the jobs data will be huge for the yellow metal, with a break above here putting it firmly back into bullish territory,” he said.

Dollar softens after ADP

The dollar fell against a basket of major currencies on Wednesday after a report on the U.S. labor market missed expectations by a wide margin, while the euro climbed to a one-month high on inflation worries.

The greenback fell after the ADP National Employment Report showed private payrolls rose by 374,000 in August, up from 326,000 in July but well short of the 613,000 forecast. A report on weekly initial jobless claims arrives on Thursday and on Friday the government releases the payrolls report for August, which could provide clues about the Federal Reserve’s policy path.

“Certainly the recovery has been uneven but if nonfarm payrolls should also disappoint, that would seemingly close the door to an imminent taper and keep the dollar in a bit of a funk,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington DC.

The dollar has been under pressure since Friday, when Fed Chair Jerome Powell said at the Jackson Hole conference that while tapering could begin this year, the central bank was in no hurry to raise interest rates.

Concerns about rising COVID-19 cases denting the economic rebound could also serve to keep the central bank from scaling back stimulus.

Other data showed U.S. manufacturing activity increased more than anticipated in August, but a measure of employment in factories fell to a nine-month low, likely due to a shortage of workers.

The US dollar index fell 0.203% and hit a new one-month low of 92.376.

The euro rose against the greenback to a one-month high as inflation worries persisted following data on Tuesday which showed euro zone inflation increased to 3% year-on-year in August, the highest in a decade and above the European Central Bank’s 2% target, as well as the 2.7% Reuters forecast.

The euro was up 0.3% to $1.1843, after rising to as much as 1.1857, its highest level since Aug. 5.

“We have seen numbers that argue against keeping policy so low for so long and that has been helping the euro... it is certainly going to heighten the focus on the QE debates next week when we hear from the ECB,” said Manimbo.

German Bundesbank President Jens Weidmann said euro zone inflation risks overshooting ECB projections and the central bank should prepare for the end of its 1.85 trillion euro Pandemic Emergency Purchase Program (PEPP).

The ECB is scheduled to hold a policy meeting on Sept. 9.

The Japanese yen strengthened 0.04% versus the greenback at 109.97 per dollar, while sterling was last trading at $1.3773, up 0.14% on the day.

Oil steadies

Crude oil prices steadied on Wednesday after OPEC and its allies agreed to stick to their existing policy of gradual oil output increases.

Brent crude fell 4 cents to settle at $71.59 a barrel. U.S. West Texas Intermediate (WTI) crude rose 9 cents to settle at $68.59 a barrel.

The Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+, agreed to stick to a policy from July of phasing out record output cuts by adding 400,000 barrels per day (bpd) a month to the market. 

Still, the group revised up its 2022 demand outlook and faces U.S. pressure to raise production more quickly. 

"While the effects of the COVID-19 pandemic continue to cast some uncertainty, market fundamentals have strengthened and OECD stocks continue to fall as the recovery accelerates," OPEC+ said in a statement.

OPEC+ has fulfilled a goal of removing excess oil from the global oil market and it is important to keep the market balanced, said Russia's top negotiator, Alexander Novak. 

U.S. crude oil prices are expected to remain under pressure as offshore oil and gas production in the Gulf of Mexico gradually recovers. However, reviving Louisiana refineries shut by Hurricane Ida could take weeks, analysts said.

Stocks waver, with Nasdaq hitting new high

The S&P 500 closed the first trading day of September near the flatline as the strength in technology shares faded, while investors digested a disappointing employment report.

The broad equity index gained just 1.41 points on Wednesday to 4,524.09 as losses in energy offset gains in utilities and real estate. The tech-heavy Nasdaq Composite advanced 0.3% to 15,309.38 to eke out a record close after trading 0.8% higher earlier in the day. Apple jumped as much as 2% to an all-time high, but pared gains to about 0.5%. The Dow Jones Industrial Average dipped 48.20 points, or 0.1%, to 35,312.53.

Among individual equities, solar stock Sunrun surged more than 6% after JPMorgan predicted a comeback that would take the shares 90% higher.

Zoom Video shares rebounded slightly following a 16% plunge Tuesday after Cathie Wood revealed she bought nearly 200,000 shares on the dip.

The major averages just wrapped up a winning August. The S&P 500 rose 2.9% for the month, posting its seventh straight positive month and its best winning streak since 2017. The Nasdaq Composite gained about 4% for its third positive month and while the Dow lagged, it still added 1.2%.

The S&P 500 has had a pretty smooth ride so far in 2021, up more than 20% without even a 5% pullback. The benchmark has closed above its 200-day moving average, a measure of the long-term trend, for 296 days in a row.

So some strategists are on the lookout for a correction in September given that stocks haven’t had a significant one since last October, combined with the highly anticipated meeting of the Federal Reserve Bank in September and the continued worry about the delta Covid variant.

“Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” said LPL Financial chief market strategist Ryan Detrick. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September.”

He added that any weakness could be short-term and contained in the 5% to 8% range.

“This bull market is alive and well and we would view any potential weakness as an opportunity,” he said.