【Market Morning】WTI oil fell more than 4% last week, Gold falls Friday, US dollar gains strength

Yesterday Market Review

Gold retreats from one-month peak 

Gold slipped on Friday as a stronger dollar dulled its appeal and pushed the metal further from one-month highs hit in the previous session.

The spot gold price closed at $1810.23 per ounce; The spot silver price closed at $25.624.

The dollar index was bound for a strong weekly gain, reducing gold’s appeal to other currency holders.

TD Securities commodity strategist Daniel Ghali said gold’s inability to benefit substantially from weaker U.S. real yields suggested it remained vulnerable to a further pull-back.

“Although gold’s valuation is more attractive on a relative basis to U.S. Treasury inflation protected securities (TIPS), the reason gold is trading at a discount to it is because it does not have the same carry advantage.”

Ghali, however, said that improving physical bullion demand, particularly from top-consumer China, and central bank purchases could limit the precious metal’s declines.

Earlier this week, Federal Reserve Chair Jerome Powell reiterated that the U.S. central bank would remain accommodative, driving gold to a one-month high on Thursday.

Uncertainty around a potential spike in coronavirus Delta variant cases in the United States could force the Fed to remain accommodative for longer, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Dollar ends week strong

The dollar edged higher on Friday, logging its largest weekly gain in a month, after upbeat retail sales data boosted expectations that economic growth accelerated in the second quarter.

The dollar index, which measures the greenback against a basket of six currencies, was 0.11% higher at 92.675. The index is up 0.6% for the week.

U.S. retail sales unexpectedly increased in June as demand for goods remained strong even as spending was shifting back to services.

A survey that showed U.S. consumer sentiment fell sharply and unexpectedly in early July to the lowest level in five months, as inflation worries dented confidence in the economic recovery, did little to dent the dollar’s stronger tone.

Solid U.S. data and a shift in interest rate expectations after the Federal Reserve flagged in June sooner-than-expected hikes in 2023 have helped lift the dollar in recent weeks and made investors nervous about shorting it.

Friday’s gains for the dollar came despite Fed Chair Jerome Powell reiterating on Thursday that rising inflation was likely to be transitory and that the U.S. central bank would continue to support the economy.

“The data was consistent with the economy making substantial strides and cements expectations of very robust second quarter growth of around 10%,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“A backdrop of rising inflation, falling unemployment and a resilient consumer makes a compelling case for the Fed to unwind stimulus,” Manimbo said.

The New Zealand dollar gained 0.44% after data showed New Zealand’s consumer prices rose far faster than expected, prompting some in the market to bet on a rate hike as soon as August..

Sterling fell against the dollar, on pace for its worst week in a month, as investors sought safety in the greenback amid concerns over rising COVID-19 cases globally.

The Canadian dollar climbed 0.1% on Friday, helped by upbeat domestic wholesale trade data, a day after touching a near 3-month low against its U.S. counterpart.

Oil ends higher

Oil prices were little changed on Friday and ended the week lower, sapped in volatile trade by expectations of growing supplies just when a rise in coronavirus cases could lead to lockdown restrictions and depressed demand.

Brent crude rose  0.2%, at $73.59 a barrel. West Texas Intermediate rose  0.2%, to settle at $71.81 a barrel.

Phil Flynn, senior market analyst at The Price Futures Group, attributed the price shift higher Friday, in part, to expectations that oil prices will have to “go up a lot higher” if the market is going to have enough incentive to meet future oil demand.

More than likely, however, the move up was “more technical” as traders start to realize that the move down on the weak consumer confidence number was “probably an overreaction, mainly because retail sales were still very strong,” he told MarketWatch.

Oil prices had lost more ground Friday shortly after data showed that U.S. consumer sentiment index from the University of Michigan fell to 80.8 in July from 85.5 in June.

“The shocking drop in consumer confidence really hit” oil, said Flynn. Retail sales, meanwhile, went through the roof, but “people were less confident as they were spending money.”

“Regardless, the shocking drop on the University of Michigan consumer confidence caused oil to drop on fears that it would reduce gasoline demand from consumers,” Flynn told MarketWatch. The Energy Information Administration reported on Wednesday a weekly decline in implied motor gasoline demand.

The United Arab Emirates and Saudi Arabia reportedly reached a compromise this week that would allow OPEC+ to further relax production curbs beginning next month, contributing to oil’s price loss this week.

“The possibility that the OPEC+ agreement might fall apart, even if Saudi Arabia and the UAE reach a compromise, suggests that the group won’t keep enough oil off the market to send prices higher from here,” Michael Lynch, president of Strategic Energy & Economic Research, told MarketWatch.

Dow drops nearly 300 points

U.S. stocks fell on Friday, pushing the Dow Jones Industrials Average into the red for the week, as inflation fears overshadowed strong retail sales numbers and better-than-expected earnings reports.

The Dow lost 299.17 points, or 0.86%, to close at 34,687.85. The S&P 500 dipped 0.75% to 4,327.16 and the Nasdaq Composite shed 0.8% to 14,427.24.

Energy stocks, the hottest part of the market in 2021, fell into correction territory on Friday as oil prices pulled back from their highs.

The Energy Select Sector SPDR Fund fell more than 2% on Friday, the worst of any group, dropping 14% from its high. Still, the sector is up about 28% in 2021, making it the top performer of any of the 11 main industry groups.

Weaker performance from technology stocks also weighed on the market Friday. Shares of Apple closed 1.4% lower after notching a record close just two days prior. Netflix shares fell ahead of the streaming giant’s second-quarter earnings report next week.

Investors digested strong earnings results from the first major week of second-quarter reports. Though some of the nation’s largest companies posted healthy earnings and revenues amid the economic recovery, the reaction in the stock market has so far been muted.

The Financial Select Sector SPDR Fund ended the week 1.5% lower despite big profit growth numbers posted by the likes of JPMorgan Chase and Bank of America.

“Good earnings might have become an excuse for some investors to take profit. And with earnings expectations so high in general, it takes a really big beat for a company to impress,” JJ Kinahan, TD Ameritrade chief market strategist, said.

The consumer sentiment weakness “is at face value hard to square with the acceleration in employment growth and the continued resilience of the stock market,” said Andrew Hunter, senior U.S. economist at Capital Economics, but the report “suggested that concerns over surging inflation are now outweighing those positive trends.”