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Market News 【Market Morning】Stocks close flat, Gold rings up first loss in 8 sessions, Dollar eases from 16-mth high

【Market Morning】Stocks close flat, Gold rings up first loss in 8 sessions, Dollar eases from 16-mth high

Gold rings up first loss in 8 sessions; Dollar eases from 16-mth high as market seeks clues on Fed policy; Stocks close flat to start the week ahead of big retail earnings.

TOPONE Markets Analyst
2021-11-16
396

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Yesterday Market Review


Gold rings up first loss in 8 sessions


Gold price settled with a loss on Monday, halting a seven-session run of advances for the precious metal that has been buoyed by fears about post-COVID inflation pressures.


“It’s been quite a run for gold, which has soared as inflation indicators have continued to rise and become more widespread,” wrote Craig Erlam, senior market analyst at Oanda Corp., in a note.


Spot gold edged down by $1.90, or 0.1%, to settle at $1,866.60 an ounce.


A rise in the U.S. dollar in Monday dealings and strength in U.S. Treasury yields put pressure on prices for the yellow metal.


“We have seen some tremendous gains for the yellow metal, and it seems like traders are now in the mood to continue to shave some profit off the table,” said Naeem Aslam, chief market analyst at AvaTrade.


“Another important factor to note here is that gold prices have taken a wild turn as many market players were expecting, on the back of the [Federal Reserve’s] monetary policy,” he said in a market update. “There is no doubt that the Fed’s monetary policy is less gold-friendly than a few months ago — the Fed has started the tapering process.”


In a “typical textbook trade, this would have meant that gold prices should have fallen off a cliff, but that is not what we have experienced so far,” said Aslam. Overall, “gold prices have been strong, and in the last week we have seen more strength.”


On top of those bullish factors for bullion, fears of out-of-control inflation, sparked by supply-chain bottlenecks and a demand surge, have helped to bolster appetite for the precious commodity. Gold is seen as a hedge against rising inflation.


“Gold has become popular despite higher yields and a stronger dollar, as inflation-adjusted yields remain at their lows. It’s also been seeing some love for its role as an inflation hedge, as we saw in the aftermath of the U.S. CPI data last week,” wrote Oanda’s Erlam.


Dollar eases from 16-mth high as market seeks clues on Fed policy


The dollar eased back from near an almost 16-month high versus major peers on Monday, as traders awaited fresh clues on the U.S. economy after bringing forward bets last week for a Federal Reserve interest rate hike on the back of red-hot inflation.


The dollar index, which measures the currency against six peers, eased 0.13% to 95.012 from Friday, when it posted its biggest weekly gain since mid-August and touched 95.266 for the first time since July 2020.


Investors will also be watching any comments coming out of a virtual summit between President Biden and Chinese leader Xi Jinping, set for Tuesday morning Beijing time and Monday evening in Washington, with relations between the world’s two largest economies strained over a range of issues.


Otherwise, the main event on the U.S. economic calendar this week will be Tuesday’s retail sales data, particularly after a survey on Friday showed consumer confidence unexpectedly plunged to a decade low in early November as high inflation hit sentiment.


“It will be important to watch what still cashed-up U.S. consumers do rather than what they say,” as readings of sentiment were at odds with actual spending during the summer, Ray Attrill, head of FX strategy at National Australia Bank in Sydney, wrote in a client note.


The dollar had been on a tear since Wednesday, when data showed a broad-based rise in U.S. consumer prices last month at the fastest annual pace since 1990, casting doubts on the Fed’s stance that price pressure will be transitory.


Money markets were pricing a first rate increase by July and a high likelihood of another by November next year as of the end of last week.


The dollar index “has shifted into higher gears” following Wednesday’s “blowout” inflation reading, with Fed stimulus tapering, President Joe Biden’s infrastructure spending and a tightening labor market also providing a dollar-supportive backdrop, Westpac strategists wrote in a research note.


“Retail sales this week are likely firm as the economy consigns the Delta-driven soft patch to the rear view mirror,” making any dips in the dollar index into the mid-93 level a buying opportunity, they said.


Gains in the heavily euro-weighted dollar index have also been helped by a droop in the single currency, with the European Central Bank appearing unlikely to change its extremely dovish policy settings in the near term against the backdrop of a slowing economy.


The euro added 0.13% to $1.1457, but still within sight of Friday’s 16-month low of $1.1433.


The dollar slipped 0.06% to 113.845 yen, consolidating around 114 since Wednesday.


Data on Monday showed Japan’s economy shrunk much faster than economists predicted in the third quarter as supply disruptions hit exports and business spending plans.


Sterling rose 0.18% to $1.34355, continuing a recovery from this year’s low of $1.3354, marked on Friday.


The risk-sensitive Australian dollar rose 0.18% to$0.743, supported by better-than-expected Chinese retail sales and industrial output readings on Monday.


U.S. oil finish higher, shake off losses from fears of a possible Strategic Petroleum Reserve release


Oil price finish on a mixed note Monday, with global prices lower but the U.S. benchmark ending higher after shaking off losses earlier in the session tied to the possibility of a release of crude from the Strategic Petroleum Reserve.


Prices had sold off for much of the session before U.S. prices shifted higher not long before the settlement of the futures trading session, after a monthly report from the Energy Information Administration forecast a rise in U.S. shale oil output next month.


Crude-oil futures had sold off in anticipation that the Biden administration may consider a release from the SPR, along with a “possible ban of oil and/or gasoline exports,” Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch. “The SPR release was promoted by Senate Majority Leader [Chuck] Schumer over the weekend.”


Schumer, D-N.Y., on Sunday said the administration should tap the reserve to help bring down gasoline prices ahead of the holiday season. Thanksgiving in the U.S., a busy travel period, is next Thursday.


An SPR release is “probably the likeliest scenario,” said Steeves. However, “it is likely to have only a short-term impact as it would be a fraction of global production and consumption,” he said.


“Moreover, it would be a one-off event rather than a sustained rise in output,” Steeves said. “It is likely the political aim of those promoting it to provide some relief through the holidays, so it could have that effect of a temporary retreat in prices.”


West Texas Intermediate crude tacked on 9 cents, or 0.1%, to settle at $80.88 a barrel, Brent crude lost 12 cents, or nearly 0.2%, to $82.05 a barrel.


Among other options to help lower prices, traders have looked to U.S. production levels, with recent data pointing to higher output ahead.


Stocks close flat to start the week ahead of big retail earnings


U.S. equities were flat on Monday, as U.S. Treasury yields reversed and climbed higher, and investors awaited quarterly reports from big retailers later in the week.


The Dow Jones Industrial Average fell 12.86 points, or 0.04%, to 36,087.45. The S&P 500 was unchanged, ending the session at 4,682.80. The tech-heavy Nasdaq lost 0.04%, falling to 15,853.85 as Treasury yields rose.


The 10-year yield crossed over 1.6% and the 30-year touched the 2% mark. Tech stocks tend to fall as yields rise.


“Today’s price action in the bond market is an indicator of how fluid the inflation story really is,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Although the Fed hasn’t fully signaled where policy will be going forward, markets continue to adjust to where they expect Fed policy to land.”


The rise in Treasury yields was reflected in Tesla, whose shares fell 1.9% and continued their decline from last week, when CEO Elon Musk sold nearly $7 billion worth of Tesla stock. Tesla ended the week down 15.4% for its worst week since March 2020.


Tech darling Nvidia also lost 1.2% as investors pulled back their positions ahead of the company’s quarterly results this week. Some have said the chipmaker is overextended on a relative strength basis, and last week Wedbush Securities downgraded the stock to neutral from outperform.


But investors’ main focus was on upcoming quarterly earnings reports from several major retailers this week. Target gained about 1.6%, while Lowe’s lost 0.5%. Both will report on Wednesday. Shares of Walmart and Home Depot, both reporting Tuesday, declined.


SoFi head of investment strategy Liz Young noted that in the past month, consumer discretionary stocks have doubled the performance of consumer staples. She added that when the retailers report this week, they’ll want earnings to square with the strength of consumer discretionary names.


“If earnings come in softer than expected, you might see a little bit of a pullback in that consumer sector, but if it’s anything like the rest of the third quarter, it seems like earnings should be solid,” she said, adding that “inflation will become a drag, it just might not hit us until we hear about fourth quarter or first quarter earnings.”


Shares of Dollar Tree jumped 14.2% following a report Friday that activist investor Mantle Ridge has taken a stake worth at least $1.8 billion in the discount store chain and will push it to do more to add to shareholder value.


Boeing rose nearly 5.5% following news that Saudi Arabian Airlines is in talks with Airbus and Boeing for a wide-body jet order. At the same time, Emirates announced an order for two Boeing 777 Freighters at the 2021 Dubai Airshow.

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