【Market Morning】S&P 500, Nasdaq close at record highs, Gold pulls back as dollar strengthens, Oil rise

Yesterday Market Review

Gold pulls back as dollar strengthens

Spot gold prices slipped, after touching a near a four-week high earlier on Monday, as the dollar ticked up from its lows and investors showed caution in the run-up to the release of a key U.S. jobs report later in the week.

Spot gold fell 0.4% to $1,808.67 per ounce, spot silver  fell 0.3% to $23.93 per ounce.

Gold initially rose on Monday in the wake of U.S. Federal Reserve Chair Jerome Powell’s speech to the annual Jackson Hole economic conference on Friday.

Powell said tapering of the U.S. central bank’s bond-buying program could happen this year but gave no indication as to the exact timeline for the Fed to start cutting its asset purchases, sending gold higher.

However, gold then fell as the dollar index, which had slipped to nearly a two-week low in the wake of Powell’s speech, attempted a rebound.

“The marketplace is starting to get a sense that there will be some tapering this year but maybe not with the aggressiveness that would spook the marketplace,” said Jim Wyckoff, senior analyst at Kitco Metals.

Wyckoff, however, said that caution ahead of the scheduled release on Friday of the U.S. nonfarm payrolls report could weigh on gold this week, with a strong number potentially giving hawkish Fed officials more leverage in arguing for a move away from ultra-easy monetary policy.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

Carsten Menke, head of next generation research at Julius Baer, said comments made at the Jackson Hole conference should have no “fundamental” impact on gold and silver.

“We remain very much convinced about a continued economic recovery and a temporary inflation spike, leading gold and silver prices somewhat lower,” Menke said, noting that inflation and the economic recovery were key drivers for the market.

Dollar holds near two-week lows

The dollar stabilized after falling to two-week lows on Monday as the greenback attempted to recover from Friday’s drop on comments from U.S. Federal Reserve Chair Jerome Powell that were interpreted as dovish.

The dollar had one of its biggest daily percentage declines of the month on Friday after Powell said tapering could begin this year, but the central bank was in no hurry to raise interest rates.

The US dollar index hit a two-week low at 92.595.

“The market is still digesting Powell’s dovish tapering speech and you are probably seeing the market is a little confused that Treasury yields are not getting the go-ahead for lift-off here, and that is going to be data dependent on everything with inflation and the job markets,” said Edward Moya, senior market analyst at OANDA in New York.

“You are probably not going to see a whole lot of conviction behind anything before we get past Friday,” said Moya.

The dollar briefly ticked higher following data on Monday that showed pending home sales declined for a second straight month in July and a report on manufacturing activity in August from the Dallas Federal Reserve showed a slowing from the prior month.

The euro was up 0.06% to $1.1799 after hitting its highest in more than three weeks at 1.181.

The Japanese yen weakened 0.03% versus the greenback at 109.89 per dollar.

Overall trade in Europe was subdued because of a public holiday in Britain. Moya noted the holiday tends to disrupt normal currency flows.

Oil rise 

Hurricane Ida temporarily shut down a critical swath of U.S. oil production and refining operations, and that should keep crude and retail gasoline prices at already elevated levels.

Now a tropical storm, Ida swept across the Gulf of Mexico production area before slamming into the Louisiana coast Sunday as a Category 4 storm, bringing torrents of rain, high winds and high tides. More than 1 million Louisiana utility customers were without power early Monday.

The energy industry was working Monday to assess when it could restore refining operations across Louisiana and oil and gas production in the Gulf of Mexico, which were taken offline as a precautionary measure.

Crude oil prices were slightly higher Monday after jumping 10% last week. However, West Texas Intermediate which traded at about $69 per barrel — are still down over 6.5% for the month. Nearly all Gulf of Mexico oil production was shut in, accounting for about 15% of the U.S. total.

“The reaction is mixed because we avoided the worst-case scenario,” Again Capital John Kilduff said. “But supplies are tight, and that could impact prices, especially since we are moving into the peak period for storms, and weather worries are going to persist around the market for the next several weeks. As for supply, the cupboard was kind of bare going into this.”

The shut in operations in the Gulf of Mexico should resume to normal if no damage is found. The hit to supplies from the hurricane comes as OPEC+ meets this week.

OPEC+ is widely expected to restore the 400,000 barrels a day of production it had previously committed to return to the market. The Biden administration had asked Saudi Arabia and OPEC for more supply to be restored.

But the cartel and its associates, like Russia, are expected to restore only the planned amount of oil to the market. “They’re not coming to rescue us from $70 oil,” Kilduff said.

Crude oil inventories are at the lowest level since January 2020. Crude supply has fallen for three straight weeks, while fuel demand has reached its highest level since March 2020, according to data released last week by the Energy Information Administration.

S&P 500, Nasdaq close at record highs 

The S&P 500 set another record high on Monday as the stock market continued to rise in the final days of August.

The broad market index gained 0.43% to set a new record high 4,528.79, while the Nasdaq Composite traded up 0.90% for its own all-time high 15,265.89. The Dow Jones Industrial Average underperformed, losing 55.96 points or 0.16% to close at 35,399.84.

Key technology stocks led the way on Monday. Microsoft and Netflix each rose about 1.3%, and Apple jumped 3%.

Shares of Affirm Holdings surged more than 46% after the buy now, pay later company announced a partnership with Amazon on Friday. Amazon’s stock rose about 2%.

Financial stocks weighed on the broader market, with Capital One shedding 6% and Wells Fargo losing 2.8%. Airline stocks lost ground the European Union recommended that member countries reinstate a ban on non-essential travel to the U.S. due to the Covid-19.

Shares of Paypal, rose 3.6% after CNBC reported that the company is exploring a stock-trading platform for its U.S. customers. Discount brokerage Robinhood, however, saw its stock fall 6.9% after SEC Chair Gary Gensler told Barron’s that banning the controversial payment-for-order-flow business model was “on the table.”

“With record GDP and earnings growth, rising inflation and the rates of infection from the Delta variant peaking, the Fed will feel more pressure to remove what is essentially emergency monetary accommodation,” wrote Morgan Stanley’s Mike Wilson, who sees a 10% correction soon in the market. “We expect a more formal signal from the Fed at the September FOMC meeting, and the markets are likely to anticipate it. That means higher interest rates and lower equity valuations.”

Stocks could stay largely range-bound until the release of August’s jobs report on Friday. Economists polled by Dow Jones expect 750,000 jobs were created in August and the unemployment rate fell to 5.2%.

However a slowdown in earnings and economic growth could still be a positive environment for stocks.

“Even with a mild cool-off in economic activity, the earnings profile is unequivocally strong. Even with a degree of moderation of these sky-high levels, they will still be high enough to present a conducive environment for equities. In other words, a tone down from great settings to good,” researchers from Bank of America said in a note to clients.