Gold scales two-week peak as market focus turns to Fed meeting

Jan 30 – Gold prices climbed to a two-week high on Tuesday, supported by a softer dollar and lower Treasury yields while focus turned to the Federal Reserve’s policy meeting for insight into how soon it will cut interest rates this year.

Spot gold was up 0.2% at USD 2,035.32 per ounce by 12:09 p.m.(1709 GMT), after hitting its highest since Jan. 16 earlier in the session. US gold futures rose 0.5% to USD 2,034.20.

“A big part of gold moving is rates have been coming off and the dollar is in the red, but we are seeing the market elevated due to the anticipation for the Fed interest rate decision on Wednesday,” said Daniel Pavilonis, senior market strategist at RJO Futures.

The dollar index fell 0.2%, making gold more appealing to other currency holders. The benchmark 10-year Treasury yields hit a two-week low.

Lower interest rates decrease the opportunity cost of holding bullion.

The Fed’s policy decision is due on Wednesday, having made a dovish turn in the December meeting. Markets are widely expecting the US central bank to leave rates unchanged at the end of the two-day meeting.

Fed wants to have a steady market so we may not see that many rate cuts, and Powell is going to be neutral and talk about the possibility of lowering interest rates, Pavilonis added.

Last week data showed moderate growth in US prices in December, keeping annual inflation below 3% for a third consecutive month and potentially allowing the Fed to begin cutting interest rates this year.

A Reuters poll showed on Monday that uncertainty about the economy and US interest rate cuts could drive record gold prices in 2024.

Spot silver fell 0.4% to USD 23.11 per ounce, but hit its highest level since Jan.15 earlier in the session. Spot platinum fell 0.6% to USD 921.70 an ounce and palladium lost 0.6% to USD 977.51.

(Reporting by Anushree Mukherjee in Bengaluru, editing by Ed Osmond and Shailesh Kuber)

Oil prices climb on geopolitical tensions, positive economic data

NEW YORK, Jan 30 – Oil prices rose on Tuesday as a higher global economic growth forecast and escalating tensions in the Middle East offset concerns around Chinese demand.

March Brent crude futures, which expire on Wednesday, rose 47 cents to settle at USD 82.87 a barrel. The more active April contract settled up 67 cents at USD 82.50.

US West Texas Intermediate crude settled up USD 1.04, or 1.35%, at USD 77.82.

The International Monetary Fund raised its forecast for global economic growth, upgrading the outlook for both the US and China on faster-than-expected easing of inflation.

On Monday, both crude contracts fell by more than USD 1 as a deepening real estate crisis in China fueled concerns over demand in the world’s biggest crude consumer, with a Hong Kong court ordering the liquidation of property company China Evergrande Group.

“There’s still concerns about what we’ve seen in China, but the fundamentals, from a supply risk standpoint, are still very bullish,” said Phil Flynn, analyst with Price Futures Group.

The continuing conflict in the Middle East also provided support to the market.

US President Joe Biden said he has made up his mind on how to respond to a drone attack as he weighs punishing Iran-backed militias without triggering a wider war.

“[The] latest upticks might be driven by some market participants adding some positions now that US President Biden has decided how to react,” said Giovanni Staunovo, analyst at UBS.

On the supply side, the US began reimposing sanctions on Venezuela this week after the country’s top court upheld a ban blocking the candidacy of the leading opposition hopeful in a presidential election later this year.

Saudi Aramco said it had received a directive from the Saudi energy ministry to maintain its maximum sustainable capacity at 12 million bpd and not to continue increasing it to 13 million bpd.

Saudi Arabia is the world’s biggest oil exporter.

“While we remain hesitant to speculate on motivations for this decision, within it, we see potential acknowledgment of a firmer global supply picture than has been broadly appreciated,” Walt Chancellor, an energy strategist at Macquarie, said in a note.

An OPEC+ meeting on Feb. 1 is unlikely to bring a decision on the group’s oil policy for April, analysts are hoping it could shed some light on production plans.

US crude stocks dropped by 2.5 million barrels while gasoline inventories gained 600,000 barrels in the week ended Jan. 26, according to market sources citing American Petroleum Institute figures on Tuesday. Official US government data is due on Wednesday.

(Additional reporting by Ahmad Ghaddar, Emily Chow, and Trixie Yap; Editing by David Gregorio and Stephen Coates)

Forget China’s overbuilding fallout – it’s jobs, jobs and Fed

Jan 30 – The court-ordered liquidation of debt-laden China Evergrande was expected and hardly rattled Asian investors aside from its bondholders and property developers, meaning Japan’s employment data Tuesday and the midweek US Federal Reserve policy statement could be better attention grabbers.

China’s blue-chip CSI300 Index and the Shanghai Composite Index took the Evergrande news in stride, both dropping 0.9% on Monday. But the liquidation of the developer with more than USD 300 billion in liabilities cannot be great for sentiment, which had been showing signs of recovery since the markets bottomed last week after Beijing took steps to stabilize its markets.

Even with promises of official government support, long-suffering local investors look to be taking the reprieve as a window for escape – leaving a market that is traditionally largely driven by retail money precariously adrift.

Hong Kong’s Hang Seng Index rose 0.8% and for it to extend the bounce from its lows investors may want to gauge whether the Hong Kong judge’s ruling on Evergrande is supported by Chinese courts.

“This is the correct market-based solution, but it will be a true test case for whether China has the stomach to see it carried out fully. Stay tuned,” said Win Thin, global head of markets strategy at Brown Brothers Harriman in a client note.

China’s steps to stimulate its economy continue to support other Asian stock markets, with Japan’s Nikkei and South Korea’s Kospi both ending higher on Monday.

Japan’s December unemployment rate comes out in early trading Tuesday, which may help set the tone for markets obsessed with whether growth is strong enough for the Bank of Japan to abandon its zero-interest rate policy. The jobless rate was unchanged at 2.5% in November.

China manufacturing PMIs on Wednesday could be more important for global markets.

The yen, and the yuan, looked pretty steady against the dollar on Monday. US stocks and Treasuries were also sturdy, after a quiet start bracing for information overload from the Fed policy statement on Wednesday that could give a stronger signal about when officials expect to start lowering interest rates.

There are also three US employment reads, culminating in the all-important US payrolls report for January on Friday.

Here are key developments that could provide more direction to markets on Tuesday:

— Australia retail sales – December

— Japan unemployment – December

— US JOLTS job openings – December

— US FOMC starts two-day meeting

(Reporting by Alden Bentley, editing by Deepa Babington)

Yields slide after Treasury announcement with Fed decision ahead

NEW YORK, Jan 29 – US Treasury yields slid on Monday at the start of a busy week that includes potentially market-moving jobs data and a Federal Reserve decision after the Treasury Department said it would need to borrow less than its previous estimates.

The US Treasury said late in the session that it expects to borrow USD 760 billion in the first quarter, USD 55 billion lower than the October estimate primarily due to forecasts for increased net fiscal flows and higher cash balance.

The Treasury also announced it expects to borrow USD 202 billion in the second quarter, as it projects a cash balance of USD 750 billion at the end of June.

Concerns over a wave of supply due to the increasing federal deficit pushed yields near two-decade highs in October, though signs that inflation is cooling and the US economy may be on pace for a soft landing have helped bring yields down since.

In late afternoon trading, the benchmark 10-year yield was down 9.4 basis points to 4.066%. It had been down 7.1 basis points prior to the Treasury announcement. The yield on the 30-year Treasury bond was down 8 basis points to 4.310%.

Investors are also bracing for the Federal Open Market Committee (FOMC) rate decision and statement on Wednesday and US non-farm payrolls data on Friday.

There are no fireworks expected in terms of the rate decision, with the Fed widely seen as holding interest rates steady, but some investors believe the US central bank could drop its hiking bias.

Analysts said overnight volume in US Treasuries was about 70% of the average.

“We’re stuck in a range right now of roughly 3.90% at the bottom and about 4.20% at the top here in the 10-year and this is much ado about nothing,” said Stan Shipley, managing director and fixed income strategist, at Evercore ISI in New York.

“It’s not likely that the 10-year is going to move much in front of the FOMC on Wednesday and payrolls on Friday given all the uncertainty.”

Federal funds futures on Monday priced in five rate cuts of 25 bps each for 2024, according to LSEG’s rate probability app. The market is also fully pricing in the first rate cut to occur at the May meeting, with a 91% probability.

At the March meeting, futures see a less than 50% chance of a Fed rate cut, down from as much as 80% three weeks ago.

On payrolls, Wall Street economists expect the US economy to have created 180,000 jobs in January, according to a Reuters poll, down from 216,000 in December. The unemployment rate is expected to have inched up to 3.8%.

In other corners of the bond market, the closely watched yield gap between two- and 10-year US Treasury notes flattened, widening its inversion to minus 21.60 basis points US2US10=TWEB.

Analysts described the yield curve move as a “bull flattener,” in which the decline in long-term rates is steeper than those in short-dated ones. This is a scenario that normally precedes a cut in interest rates by the Federal Reserve.

The bull flattening on Monday suggests a flight-to-safety trade, analysts said, and comes after the killing of three US troops and wounding of dozens more on Sunday in Jordan by Iran-backed militants.

In other maturities, the US two-year yield, which reflects interest rate expectations, was down 5.7 basis points at 4.308%. It had been down 4.3 basis points prior to the Treasury announcement.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by David Randall; Editing by Andrea Ricci, Cynthia Osterman, and Marguerita Choy)

Dollar gains on euro before Fed meeting

NEW YORK, Jan 29 – The dollar gained against the euro on Monday as investors prepared for the prospect that the Federal Reserve could push back against expectations of an imminent rate cut when it concludes its two-day meeting on Wednesday.

Traders have cut odds that the US central bank will reduce rates in March to 48%, from 89% a month ago, according to the CME Group’s FedWatch Tool, as data reinforces a view that the US economy remains solid.

That also contrasts with a weaker economic outlook for European countries, which is making the single currency relatively less attractive.

“The macro picture in the US looks a lot better than the macro picture in European union countries and the eurozone in general,” said Helen Given, FX trader at Monex USA in Washington.

The Fed is expected to hold rates steady on Wednesday and investors will focus on comments from Fed Chairman Jerome Powell, after he indicated in December that the Fed is pivoting to a rate cutting cycle.

“We’ll probably see a bit of pushback on the last meeting,” said Given. “I’d expect that a lot of the dollar strength that we’re seeing today, and we should continue to see until that decision release on Wednesday, is coming from shifting expectations.”

The euro dipped 0.20% to USD 1.08290 and earlier reached USD 1.07955, the lowest since Dec. 13.

The European Central Bank on Thursday held interest rates at a record-high 4% and reaffirmed its commitment to fighting inflation even as the time to start easing borrowing costs approaches.

“ECB President Christine Lagarde emphasized during her press conference that the debate over rate cuts was premature but reiterated that borrowing costs could be lowered from the summer. Lagarde also did not lean against aggressive money market expectations of the ECB’s easing cycle,” said Win Thin, global head of currency strategy at Brown Bothers Harriman, in a note.

ECB policymakers speaking on Monday disagreed on the exact timing of a cut or the trigger for action.

Traders are now fully pricing a move in April, with almost 150 basis points of easing priced in for the year.

The dollar index =USD, which measures the US currency against six rivals, was last down 0.05% at 103.50. It earlier reached 103.82, matching last week’s high, which was the highest since Dec. 13.

The index fell in afternoon trading in line with Treasury yields after the US Treasury said it expects to borrow USD 760 bln in the first quarter, USD 55 bln lower than its October estimate.

Sterling was little changed on the day at USD 1.27050 ahead of the Bank of England’s policy announcement on Thursday.

The greenback fell 0.45% to 147.45 yen, but the Japanese currency is on course for a 4.5% decline in January as traders temper their expectations of when the Bank of Japan would exit from its ultra-loose policy.

Investors are also wary of growing geopolitical risks after three US service members were killed in an aerial drone attack on US forces in northeastern Jordan near the Syrian border.

Such uncertainties could provide the safe-haven yen with a temporary lift, analysts said.

In cryptocurrencies, Bitcoin gained 2.62% to USD 43,087.

(Reporting by Karen Brettell; Editing by Bernadette Baum and Deepa Babington)

Strong US economic outlook buffers stocks against rising yields – Goldman

NEW YORK, Jan 29 – A strong economic outlook is helping US stocks weather a rise in Treasury yields, though that could change if factors such as tighter monetary policy drive yields higher or if they move up too fast, Goldman Sachs strategists said.

The S&P 500 and 10-year Treasury yield had been negatively correlated – meaning they have moved in opposite directions – since long-term yields began rising last July, Goldman equity strategists led by David Kostin said in their latest weekly kickstart note.

The S&P 500 sold off sharply over that period as yields marched to a 16-year high in October, making stocks relatively less attractive. Equities staged a swift rebound when yields, which move inversely to bond prices, tumbled in the final months of the year.

In 2024, however, stocks have hit record highs even as the 10-year yield has risen about 30 basis points to 4.2%.

One reason for stocks’ resilience is the improving economic outlook, Goldman’s strategists said.

Since 1990, the S&P 500 has generated a median monthly return of 1.3% when the yield curve steepens, their data showed.

Returns have been substantially stronger when economic growth expectations are improving rather than weakening, regardless of whether the yield curve steepened or flattened, the strategists said.

“As investors worry less about the potential for Fed tightening, growth expectations should become a more important driver of yields, contributing to a less negative correlation between stocks and yields in 2024,” they wrote.

In a separate note, Goldman’s economists raised their fourth-quarter economic growth estimate to 2.4% from 2.1%.

Goldman forecasts the S&P 500 will end 2024 at 5,100, a gain of just over 4% from Friday’s close.

“However, if rates rise substantially from current levels because of shifts in Fed policy or the balance of Treasury supply and demand, equities will likely struggle,” the strategists said.

Moreover, equities will face pressure if Treasury yields rise more quickly than the recent pace, regardless of the reason, they said, noting that rates could be more volatile with the 2024 election.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Richard Chang)

Gold firms on Middle East flare-up ahead of Fed meeting

Jan 29 – Gold firmed on Monday as rising tensions in the Middle East lifted demand for the safe-haven asset, while markets awaited a Federal Reserve policy decision later this week for more clues on the timing of this year’s first US interest rate cut.

Spot gold was up 0.4% at USD 2,025.97 an ounce by 02:23 p.m. ET (1923 GMT).

US gold futures settled 0.4% higher at USD 2025.4.

Washington was considering its response to the first deadly strike on its forces in the Middle East since the Gaza war began after a drone attack in northeastern Jordan at the weekend killed three US servicemen and wounded at least 34.

“That has ratcheted up the tensions in the Middle East even higher, and that’s what has the money moving into the gold and silver market on a safe-haven demand basis,” said Jim Wyckoff, senior analyst at Kitco Metals.

Benchmark US 10-year bond yields slipped, increasing the appeal of non-yielding bullion.

A decision is due on Wednesday from the rate-setting Federal Open Market Committee (FOMC), which took a dovish turn in the December meeting.

“This FOMC meeting will show some guidance on when the first interest rate cut might come, and whether the Fed will lean dovish or hawkish on its monetary policy,” Wyckoff added.

A Reuters poll showed on Monday that uncertainty about the economy and US interest rate cuts could drive record gold prices in 2024.

Spot silver was up 1.2% at USD 23.11 an ounce, hitting its highest level since Jan.16, while platinum rose 1.3% to USD 925.20. Palladium gained 2.1% to USD 975.35.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Jan Harvey and Krishna Chandra Eluri)

European shares tepid as travel stocks counter gains in energy

Jan 29 – European equities kick-started the week on a subdued note, after scaling two-year highs in the previous session, as heavy losses in travel stocks partially outweighed strong performances in the energy sector.

The pan-European STOXX 600 was flat at 483.66 points on Monday, as of 0823 GMT. The benchmark index hit its highest level in two years and clocked the best week in three months on Friday.

Shares of Ryanair, Europe’s largest airline by passenger numbers, dropped 2.3% after the carrier trimmed its profit forecast for the year ended March.

The travel and leisure index shed 0.5%.

Countering losses, oil and gas stocks added 1.5%, as crude prices climbed after a drone attack on US forces in Jordan added to worries over supply disruption in the Middle East.

Among major movers, Holcim jumped 5.1% to the top of the benchmark index after the Swiss building materials giant said it will spin off its North American operations in a New York flotation, which could value the business at USD 30 billion. The company also named a new CEO.

(Reporting by Shristi Achar A in Bengaluru; Editing by Sherry Jacob-Phillips)

Oil drops as China demand concerns counter supply jitters

NEW YORK, Jan 29 – Oil prices fell more than a dollar a barrel on Monday as China’s ailing property sector sparked demand worries, causing traders to reassess the supply risk premium from escalating tensions in the Middle East.

Brent crude futures fell USD 1.15, or 1.4%, to settle at USD 82.40 a barrel, while US West Texas Intermediate crude futures dropped by USD 1.23, or 1.6%, at USD 76.78 per barrel.

Both contracts settled lower for the first time in four sessions as attention shifted to demand concerns in China, where a real estate crisis deepened with a Hong Kong court ordering the liquidation of property giant China Evergrande Group.

The deepening real estate crisis is a blow to investor confidence in the top oil importer’s economy, with earlier data showing slower-than-expected activity.

“The situation in China is the biggest headwind to the whole market, that is why the market keeps backing off from the war risk premium,” said John Kilduff, partner at Again Capital LLC.

Both benchmarks had gained about 1.5% early in Monday trade, with Brent prices touching their highest since early November after a fuel tanker was hit by a missile in the Red Sea and US troops were attacked in Jordan near the Syrian border. The events mark a major escalation of tensions that have engulfed the Middle East.

However, following the news from China, some market participants questioned how much the risk premium should be as oil supplies have not yet been directly affected by the Middle East crisis.

“Currently we are seeing a premium of around USD 10 a barrel when it should really just be USD 3 or USD 4 based on true petroleum demand fundamentals,” said Gary Cunningham, director at energy advisory firm Tradition Energy.

Meanwhile, lingering high interest rates were also in focus after European Central Bank policymakers were unable to reach a consensus on Monday over when interest rates should be cut.

Russia, meanwhile, is likely to cut exports of naphtha, a petrochemical feedstock, by between 127,500 and 136,000 barrels per day – about a third of its total exports – after fires disrupted operations at Baltic and Black Sea refineries, according to traders and LSEG ship-tracking data.

Another Russian oil facility came under attack on Monday, with Russian authorities indicating they had thwarted a drone attack on the Slavneft-YANOS refinery in the city of Yaroslavl.

US crude oil and distillates inventories were expected to have reduced last week while gasoline stocks were seen rising, according to a preliminary Reuters poll.

The American Petroleum Institute will publish its US stockpiles data on Tuesday around 4:30 pm ET. Official data from the Energy Information Administration is due on Wednesday at 10:30 am ET.

(Reporting by Shariq Khan, Natalie Grover, Florence Tan, and Mohi Narayan; Editing by Mark Potter, Jane Merriman, and Ros Russell)

Dollar steady in cautious start to busy data, Fed week

SINGAPORE, Jan 29 – The dollar started the week on a steady footing as investors took stock of US economic data ahead of the Federal Reserve policy meeting this week, while escalating geopolitical tensions in the Middle East kept risk sentiment in check.

The dollar index, which measures the US currency against six rivals, inched 0.01% higher to 103.55 on Monday, set for a 2% gain in January as traders temper expectations of early and deep US interest rate cuts.

The Fed in December surprised markets by taking a dovish tone and projecting 75 basis points of rate cuts in 2024, resulting in markets pricing in early and steep easing, with a cut expected as early as March.

But since then, strong economic data and pushback from central bankers have prompted traders to adjust expectations. Markets are currently pricing in a 48% chance of a rate cut in March, the CME FedWatch tool showed, compared with an 86% chance at the end of December.

“The markets recognize that the tightening cycle is over. However, they swung hard, pricing in aggressive easing by most of the G10 central banks,” said Marc Chandler, chief market strategist, at Bannockburn Forex.

The coming weeks will likely continue the correction of the trends that began last month, Chandler said.

Data on Friday showed US prices rose moderately in December, keeping the annual increase in inflation below 3% for a third straight month and reinforcing expectations that rate cuts are likely to come this year.

Investor attention this week will squarely be on the Federal Reserve’s two-day policy meeting which starts on Tuesday, with the central bank widely expected to stand pat on rates, leaving the spotlight all on Fed Chair Jerome Powell and his comments.

“This Wednesday’s meeting should be straightforward … There is little reason for the FOMC to make meaningful changes in the statement,” said Paul Mackel, global head of FX research at HSBC.

“The focus will be on Chair Powell’s thinking about potential changes to the Fed’s balance sheet and whether the pace of QT (quantitative tightening) should slow, and if so when?”

Beyond the Fed, investors will also watch for a slew of economic data including a US payrolls report that will help gauge the strength of labor market.

The euro was down 0.05% at USD 1.0847, while Sterling was last at USD 1.2703, up 0.04% on the day ahead of Bank of England meeting later this week.

The Japanese yen strengthened 0.01% to 148.14 per dollar on Monday. The Asian currency is down nearly 5% against the dollar in January, on course for its weakest monthly performance since June 2022.

Meanwhile, investors are wary of heightened geopolitical risks after three US service members were killed in an aerial drone attack on US forces in northeastern Jordan near the Syrian border.

US President Joe Biden blamed Iran-backed groups for the attack, the first deadly strike against US forces since the Israel-Hamas war erupted in October.

The geopolitical ructions could provide the safe haven yen a temporary lift, analysts said.

Elsewhere, The Australian dollar rose 0.21% to USD 0.659, while the New Zealand dollar gained 0.18% to USD 0.610.

In cryptocurrencies, bitcoin last rose 0.18% to USD 42,062.00.

(Reporting by Ankur Banerjee in Singapore. Editing by Sam Holmes)

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