【Market Morning】S&P 500 slips from record, Gold ends higher, Oil falls

Yesterday Market Review

Gold ends higher, but stays below the key $1,800 mark

Spot gold price ended higher on Wednesday, finding support from weakness in the U.S. dollar and a retreat in Treasury yields, but prices remained below the key $1,800 mark for a second straight session.

Spot gold rose 0.3%, to settle at $1,798.80 an ounce, spot silver rose 0.4% to $24.19 per ounce.

Gold has “met some resistance” at $1,800 and is having difficulty pushing through, Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch.

“If the Democrats reach agreement amongst themselves on the mega social spending bill, then gold could see some interest if the U.S. dollar drops,” he said. But to date, the dollar has been “fairly solid as 10-year US bond yields have held above 1.5% recently.”

“Unless safe haven interest develops, I am not optimistic gold will push through $1,800 and see more leverage to downside after last week’s move up,” said Wright.

Some buying was being seen in precious metals as U.S.-China tensions were seen flaring up. China’s biggest telecom operator, China Telecom, was being blocked from doing business in the U.S., after the  U.S. Federal Communications Commission voted Monday to revoke and terminate a unit of the Chinese company, citing  “significant national security and law enforcement risks.”

Weakness in the U.S. dollar and the lower yields are usually supportive for gold, which recently drifted up to around the $1,800 for the first time in six weeks as concerns about out-of-control inflation helped to boost bullion values.

U.S. dollar index falls, Canadian dollar, euro, yen gain

The U.S. dollar lost value against major currencies on Wednesday as the Bank of Canada started off a series of awaited central bank policy comments with a hawkish tone.

The moves broke a calm that had settled over the currency markets this week and took the U.S. dollar index down 0.2% to 93.759.

The greenback lost 0.7% to the loonie, which traded for $1.2310 at 1432 GMT.

“You’re going to see more FX volatility and swings here,” said Ed Moya, senior market analyst at broker OANDA.

Traders will have different expectations for inflation in each region, Moya said, adding: “Interest rate differentials are going to be really hard to calculate for some currencies.” 

The Bank of Canada said it now expected slack in the economy to be absorbed in the “middle quarters” of 2022, signaling rates could rise months sooner than previously forecast.

Before the announcement, the Canadian dollar had weakened to its lowest level in nearly two weeks against its U.S. counterpart.

The comments from the Bank of Canada could trigger new assessments of how interest rates will change and impact currencies as central bankers try to support the pandemic recovery without unleashing sustained inflation. Currency markets had moved little in the first two days of this week as traders paused for monetary policy announcements from major central banks around the world, including the U.S. Federal Reserve, which meets next week.

For much of the day, the euro traded within 0.2% of its Tuesday close against the dollar. The euro was last up about 0.2% to $1.1614.

The European Central Bank meets on Thursday and is expected to take a dovish stance. The German government cut its 2021 growth forecast for this year, as supply bottlenecks for semiconductors and rising energy costs delay recovery in Europe’s largest economy.

Oil falls after increases in U.S. crude, fuel stockpiles

Crude oil prices fell on Wednesday after industry data showed crude oil stockpiles rose more than expected and fuel inventories unexpectedly increased last week in the United States, the world’s largest oil consumer.

Brent crude oil futures fell 1.42%, or $1.28, to trade at $85.12 a barrel after closing at the highest in seven years on Tuesday.

West Texas Intermediate (WTI) futures settled 2.35%, or $1.99, lower at $82.66 a barrel after gaining 1.1% in the previous session.

Crude oil inventories rose 2.3 million barrels in the week ending Oct. 22, market sources citing American Petroleum Institute figures said late on Tuesday. That was more than the expectations for a 1.9 million barrel gain.

Gasoline inventories rose by 500,000 barrels and distillate stocks increased by 1 million barrels, compared with a forecast for both to drop.

With Brent rising the past eight weeks and WTI climbing for the past 10 weeks, prices are starting to look overbought, analysts said.

“Barring more bullish headlines, which is possible considering what we saw yesterday, we could see some profit-taking in Brent and WTI which would be healthy for the market,” said Craig Erlam, senior market analyst at OANDA. 

S&P 500 slips from record as earnings season rally loses some steam

The S&P 500 fell from a record high on Wednesday as the momentum from a strong earnings season started to fade.

The Dow Jones Industrial Average dipped 266.19 points to 35,490.69, falling for the first time in four days, dragged down by Visa. The S&P 500 traded down 0.5% to 4,551.68, for its first down day in three. The tech-heavy Nasdaq Composite closed at 15,235.84, flat despite a jump in Microsoft and Alphabet shares.

Microsoft shares jumped 4.2% after the tech company reported earnings that exceeded analysts’ estimates and the fastest revenue growth since 2018. Google-parent Alphabet also popped 4.9% following a stronger-than-expected quarterly report.

Visa’s stock slipped 6.9% after the company issued a revenue outlook that some analysts considered conservative. Plus, the Justice Department is investigating Visa’s relationship with financial-technology firms, sources familiar with the matter told Dow Jones.

General Motors shares fell 5.4% even after the industrial giant topped Wall Street’s earnings and revenue estimates for the third quarter. Boeing saw its stock fall 1.5% after the aircraft maker posted a wider-than-expected loss.

Robinhood shares were getting slammed, down 10.4% the day after the trading app reported revenue well below expectations primarily due to weakness in crypto trading. Twitter shares also fell 10.7% on concerns about expense guidance, despite strong earnings.

So far roughly 38% of the S&P 500 has reported earnings. Of the names that have posted quarterly updates, 83% have topped earnings expectations, while 79% have exceeded revenue estimates.

“This earnings season has been about pricing momentum and whether consumers are able to handle surging costs,” said Ed Moya, senior market analyst at Oanda. “So far it seems the consumer can handle it,” he added.

Strong results have been key to pushing the major averages to new highs. The S&P 500 has rallied 5.6% in October, on track for its best monthly performance since November 2020. The equity benchmark reached its 57th record close of 2021 on Tuesday.

Texas Instruments shares tumbled 5% after the company missed revenue estimates. Enphase Energy leaped 24.6% after reporting record revenue in the face of supply chain headwinds.

Coca-Cola rose 1.9% after the company posted a beat on the top and bottom lines and raised its outlook, saying the business was getting stronger particularly in areas where the Covid recovery has been the best.

“We see signs that there could be more gains to come in the final two months of the year,” said Ryan Detrick, chief market strategist for LPL Financial. “Seasonal tailwinds, improving market internals, and clear signs of a peak in the delta variant all provide potential fuel for equities heading into year-end, and we maintain our overweight equities recommendation as a result.”