【Market Evening】Oil prices off 7-week lows, Dollar shines, euro suffers

Gold steadies after hitting 2-week low as dollar retreats

Gold prices stabilized on Monday after hitting their lowest in nearly two weeks, as a retreating dollar lent some support to the metal.

Spot gold fell 0.12% to $1844.61 per ounce and spot silver rose 1.17% to $24.85 per ounce by 17:30(GMT+8).

The dollar index fell 0.1%, retreating from Friday’s high. A weaker dollar reduces bullion’s cost to buyers holding other currencies.

Federal Reserve policymakers are publicly debating whether to taper asset purchases more quickly with one of the central bank’s most influential officials signaling on Friday that the idea will be on the table at the Fed’s next meeting.

Bundesbank president Jens Weidmann publicly contradicted the European Central Bank’s official line on Friday, warning that inflation may stay above 2% for some time and that the ECB should avoid any commitment to keeping the money taps open.

A hike in interest rates should reduce bullion’s appeal as higher rates raise the non-interest bearing metal’s opportunity cost.

The White House said there will be more to report on President Joe Biden’s choice for the next Fed chairman early this week.

Indicative of sentiment, SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.8% to 985 tons on Friday from 976.87 tons on Thursday.

Speculators raised their net long COMEX gold futures and options positions to 164,043 in the week to Nov. 16, while net long positions in COMEX silver also increased, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

Physical gold demand in major Asian hubs softened last week, although Indian dealers looked to the upcoming wedding season for renewed interest in bullion.

Dollar shines, euro suffers as Covid fears flare over Europe

The safe-haven U.S. dollar traded close to a 16-month high to the euro on Monday on growing anxiety over the impact of surging Covid-19 infections in Europe, with Austria reimposing a full lockdown and Germany considering following suit.

The greenback was near its strongest since early October against the riskier Australian and Canadian dollars, with the commodity-linked currencies also pressured by a slump in crude oil.

The dollar got additional support from bullish comments by Federal Reserve officials Richard Clarida and Christopher Waller on Friday who suggested a faster pace of stimulus tapering may be appropriate amid a quickening recovery and heated inflation.

An more rapid end to tapering raises the possibility of earlier interest-rate increases too. Currently the market is priced for the Federal Open Market Committee (FOMC) to start hiking rates by the middle of next year.

The dollar index, which gauges the currency against six major peers, traded at 96.065, staying within sight of last week’s 16-month high of 96.266.

The euro slumped 0.23% to $1.1274, approaching its lowest since July of last year at $1.1250, reached Friday, when it tumbled 0.66%.

“EURUSD has been in free-fall and will likely get the lion’s share of attention from clients looking for a play on growing restrictions and tensions across Europe,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a note to clients.

“For momentum, trend followers and tactical traders, short EUR remains attractive here.”

Europe has again become the epicenter of the pandemic, accounting for half of global cases and deaths.

A fourth wave of infections has plunged Germany, Europe’s largest economy, into a national emergency, Health Minister Jens Spahn said, warning that vaccinations alone will not cut case numbers.

Austria becomes the first country in western Europe to reimpose a full Covid-19 lockdown from Monday.

Worries that a slowdown in Europe could hit energy demand dented crude oil, which was also in retreat over the prospect of a U.S.-led release of emergency stockpiles.

The dollar added 0.21% against the oil-linked Canadian loonie to C$1.26575, closing in on Friday’s high at C$1.2663, the strongest level since Oct. 1.

The Aussie eased slightly to $0.7234, and earlier dipped as low as $0.72285, the cusp of a low since Oct. 6.

“We expect AUD to remain heavy in the near-term (and) a dip to $0.70 is possible,” with a slowing Chinese economy and the Reserve Bank of Australia’s dovish policy stance dragging on the currency, Joseph Capurso, a strategist at Commonwealth Bank of Australia, wrote in a report.

Meanwhile, “USD can extend its recent rally this week and set a fresh 2021 high,” he said. “Another round of strong U.S. inflation can further propel market pricing of FOMC rate hikes and the USD.”

The dollar was largely flat against fellow safe-haven the yen, changing hands at 114.03 yen per dollar, in the middle of its range over the past week and a half.

Oil prices off 7-week lows but under pressure as release of reserves eyed

Oil prices came off seven-week lows on Monday but remained under pressure after Japan said it was weighing releasing oil reserves and as the COVID-19 situation in Europe worsened, raising concerns about both oversupply and weak demand.

Brent crude oil rose 0.95% to $78.53 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 0.85% to $76.13 by17:30(GMT+8).

The market is in a state of flux as strategic petroleum reserves (SPR) releases are not fully priced in yet, said an oil trader in Singapore.

WTI and Brent prices hit their lowest since Oct. 1 earlier in the session. They slumped around 3% on Friday, declining for the fourth straight week for the first time since March 2020.

Japanese Prime Minister Fumio Kishida signalled on Saturday he was ready to help combat soaring oil prices following a request from the United States to release oil from its emergency stockpile, in an unprecedented move.

Tokyo is exploring ways to bypass a law which permits the release of oil reserves only in cases of supply shortage or natural disasters. 

The White House on Friday pressed the OPEC producer group again to maintain adequate global supply, days after U.S. discussions with some of the world's biggest economies over potentially releasing oil from strategic reserves to quell high energy prices. 

The combined SPR release could be 100 million to 120 million barrels or even higher, Citi analysts said in a note dated Nov. 19. This includes 45 million to 60 million barrels from the United States, about 30 million barrels from China, 5 million barrels from India and 10 million barrels each from Japan and South Korea, the bank estimated.

"If released over December and January, this could mean looser markets by some 1.5-2.0-m b/d. This would be against the backdrop of expected stock draws of 2.8-m b/d in Dec’21 and 0.5-m b/d in Jan’22 without any SPR release," Citi said.

Further weighing on prices was possible renewed lockdowns in Europe as COVID-19 cases surged again. Germany warned on Friday it may need to move to a full lockdown after Austria said it would reimpose strict measures to tackle rising infections.

The worsening Europe COVID-19 situation and profit-taking among investors towards year-end added to uncertainties in the market, the trader said.

"Profit taking has turned into a rout on prices," he said, adding that prices are likely to go sideways until January before heading higher.

Money managers cut their net long U.S. crude futures and options positions in the week to Nov. 16, the U.S. Commodity Futures Trading Commission said on Friday.

Investors were also watching developments in the Middle East after Saudi state media reported early on Monday the Saudi-led coalition fighting the Iran-backed Houthi movement in Yemen said it detected indications of an imminent danger to navigation and global trade south of the Red Sea. 

Asian markets mixed after China warning on risks, stagflation

Stocks were mixed in Asia on Monday after ending the week mostly lower on Wall Street, despite the Nasdaq’s first close above 16,000.

Nikkei 225 rose 0.09% to 29,774.11.

Hang Seng Index fell 0.39% to 24,951.34.

Taiwan capitalization weighted stock fell0.08 to 17,803.54.

S&P/ASX 200 fell 0.59% to 7,353.10.

South Korea KOSPI rose 1.42% to 3,013.25.

A resurgence of coronavirus outbreaks in the U.S., Europe and some other regions is weighing on investor sentiment. Comments by advisers to the Chinese central bank about risks of “stagflation,” meanwhile, have reinforced concerns about inflationary pressures.

Attention has turned to the People’s Bank of China as Beijing strives to curb risks from excessive borrowing by property developers but still keep the economy growing.

An adviser to the PBOC, Liu Shijin, told a conference over the weekend that China needed to avoid “quasi-stagflation,” Bloomberg reported.

Another economist, Jia Kang, echoed that sentiment, saying that if the pace of economic growth is slower than the inflation rate, “then how can we formulate a prescription for macro-control?”

Ting Lu of Nomura noted that controls on property lending, fresh waves of COVID-19 outbreaks and strict policies to fight them and surging prices are all adding to China’s policy challenges.

“A raft of meeting memos and policy reports show that Beijing is becoming increasingly concerned about the growth slump and has begun to take action to shift its policy stance in order to prevent growth from sliding further,” Ting said in a report.