Gold Dips Ahead of US CPI Release – Treasury Yields on the Rise
Gold is trading bearish on Tuesday as US Treasury yields remain strong even as rising optimism about economic recovery keep the safe haven appeal of the metal under pressure. At the time of writing, GOLD is trading at a little above $1,727.
A successful auction of the three-year US Treasury notes have helped bond yields edge higher even as markets await more economic data releases from the US for driving more moves. As we know, higher bond yields increase the opportunity cost of holding non-yielding bullion and reduce its appeal as an investment.
All eyes now turn to the release of the CPI data from the US scheduled for later in the day. It can drive significant volatility in markets as a higher than forecast reading will once again increase concerns among traders about a spike in inflation as the US economy recovers from the coronavirus crisis, which in turn could propel US Treasury yields higher and keep gold prices under pressure.
· Gold Price Analysis: XAU/USD to move downward as market focuses on higher yields – OCBC
Strategists at OCBC Bank estimate gold’s fair value range at $1625-$1725. With spot gold currently trading at around $1730, there is scope for XAU/USD to correct downwards.
“We have been highlighting gold’s appeal as an inflationary hedge since the start of the year but the market appears to place that feature as a low priority, preferring to ride along the inflation/reflation theme by piling into risk assets.”
“The mood surrounding Treasury yields has shifted and the market is now looking at how much higher rates can go, which in essence is negative for gold prices.”
“We turn bearish on gold in the short-term and neutral in the medium to long-term.”
“We see fair value at $1625-$1725 based on current inputs.”
· Dollar languishes near three-week lows as traders brace for inflation data
The dollar hovered near a three-week low against major rivals on Tuesday, pressured by lower Treasury yields as traders awaited highly anticipated U.S. inflation data later in the global day.
Retail sales figures due Thursday will also be closely watched.
The dollar index, also known as DXY, edged slightly higher to 92.170 early in the Asian session, but still near Thursday’s low of 91.995, which was the weakest since March 23. It had rallied to a nearly five-month high of 93.439 on the last day of March.
“DXY has been slipping in recent days but should find stability with the U.S. macro outperformance narrative set to get a strong airing” in data this week, Westpac strategists wrote in a client note, projecting a rally toward 94.500.
“Treasury issuance is surging at the same time as inflationary pressures show in the data, which should lift the U.S. dollar.”
Westpac expects 10-year Treasury yields to rise toward the top of its recent 1.6-1.755% range this week.
The benchmark yield was at 1.6764% on Tuesday. It had surged to a more than one-year high of 1.7760% on March 30.
Foley forecasts the dollar to trade “choppily” in a $1.17 to $1.20 range versus the euro; it is currently at $1.1904, which is near its weakest level since March 23.
· Traders Wait for U.S. Consumer Price Index Numbers
Tomorrow at 8:30 AM EST, the U.S. Bureau of labor statistics will release its Consumer Price Index summary.
US CPI may invert the USD/low-yielders trend
US inflation numbers today should fuel the narrative that the economy is starting to overheat, sending Treasury yields and the dollar higher
EUR: Current levels to be tested
The US inflation report (to be more precise, its impact on UST yields) is set to be the main driver for the EUR/USD today and may cause the pair to test last week’s 1.1860 lows. A usually important data point in the eurozone – the German ZEW – should have limited impact today as a positive re-rating of the eurozone recovery outlook appears almost solely reliant on material advancements on the vaccination rollout in the EU and the unlocking of the EU Recovery Fund.
GBP: The rebound should have legs
We were not at all surprised to see sterling's rebound yesterday after last week’s correction: the storm that hit the AstraZeneca vaccine has not derailed the UK vaccination plans, leaving prospects of a sharp recovery in the country intact. Also, GBP/USD appeared meaningfully undervalued at the end of last week. We expect the pound to show relatively good resilience to any USD rally today.
NZD: RBNZ’s pause to have limited FX implications
· Bitcoin hits record high of $62,575
Bitcoin hit a record of $62,575 on Tuesday, extending its 2021 rally to new heights.
The world's biggest cryptocurrency has more than doubled in price this year amid growing mainstream acceptance as an investment and a means of payment, and as investors seek high-yielding assets amid low interest rates.
Major firms including BNY Mellon, Mastercard Inc and Tesla Inc are among those to have embraced or invested in cryptocurrencies.
· BOJ's Kuroda says weak yen promises to benefit Japan's economy
Bank of Japan Governor Haruhiko Kuroda preached on Tuesday the benefits of a weak yen currency, saying it helped manufacturers by inflating the value of profits earned overseas.
Many Japanese manufacturers now produce goods they sell overseas locally, which means a weak yen may not boost export volumes as much as it had in the past, Kuroda said.
· India's 161,736 new coronavirus infections are world's highest
· Australia reports second Astrazeneca blood clot case, vaccine rollout steady
· Japan Olympic adviser urges COVID-19 vaccine option for athletes
· UK economy grew in February as firms prepared for lockdown easing
Britain’s economy grew by 0.4% in February from January as companies got ready for the lifting of a third coronavirus lockdown, official data showed on Tuesday.
· France could return to pre-COVID economic level by mid-2022: Villeroy
France could return to pre-COVID normal economic growth levels by the middle of 2022, Bank of France governor and European Central Bank (ECB) policymaker Francois Villeroy de Galhau said on Tuesday.
“We will gradually climb back to the altitude we had prior to COVID,” Villeroy told France Culture radio.
The French central bank said on Monday it did not anticipate a significant revision of its 2021 growth forecast of 5.5% if the new COVID-19 restrictions do not extend beyond April.
· Texas oil pipelines face dry months as production languishes
Nearly half of all oil pipelines from the Permian basin, the biggest U.S. oilfield, are expected to be empty by the end of the year, analysts and executives said.
· Myanmar activists cancel new year festivities, hold silent protests
· Asia shares bounce on strong China trade data
Asian stocks markets were broadly positive Tuesday after China’s exports grew at a strong pace during March and imports rebounded giving investors heart that domestic demand is improving as part of the recovery from the pandemic.
China’s exports in dollar terms rose by 30.6% in March from one year earlier while imports jumped 38.1% compared to the same time last year, figures published Tuesday showed.
Imports grew at the fastest pace in four years which analysts said indicated a post-pandemic recovery in Chinese domestic demand.
· South Korea jumps 1%; Alibaba shares in Hong Kong set to see second straight day of gains
Shares in Asia-Pacific were mixed on Tuesday, with South Korea leading major markets regionally.
By Tuesday’s close, the Kospi in South Korea was 1.07% higher, at 3,169.08.
In Japan, the Nikkei 225 rose 0.72% to close at 29,751.61 while the Topix index gained 0.2% to finish the trading day at 1,958.55.
Mainland Chinese stocks closed mixed. The Shanghai composite shed 0.48% to 3,396.47 while the Shenzhen component rose 0.242% to 13,528.31. The Hang Seng index in Hong Kong climbed about 0.11%, as of its final hour of trading.
Australia’s S&P/ASX 200 ended the day fractionally higher at 6,976.90.
MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed.
· Alibaba outperforms Chinese tech
In Hong Kong, Chinese e-commerce giant Alibaba rose about 0.7% in Tuesday afternoon trade, adding to gains of more than 6% on Monday.
The Chinese central bank announced Monday that Alibaba’s financial technology affiliate Ant Group is to restructure as a financial holding company. It comes just days after Alibaba was slapped with a $2.8 billion fine for violating anti-monopoly rules.
Shares of other Hong Kong-listed Chinese tech firms declined. Tencent slipped about 0.8% while Meituan plunged more than 7%. The broader Hang Seng TECH index fell more than 1.5%.
· European stocks muted as data and earnings come into focus
European markets were little changed on Tuesday as investors monitor key economic data and the beginning of corporate earnings season.
The pan-European Stoxx 600 inched 0.1% above the flatline in early trade, with tech stocks adding 0.7% while telecoms slid 0.7%.
Back in Europe, U.K. GDP grew 0.4% in February from the previous month according to official data published Tuesday, slightly missing economist expectations of a 0.6% expansion. Manufacturing output rose by 1.3%, outstripping expectations for a 0.5% monthly gain, while services output grew 0.2%, missing projections for 0.6% growth.
April’s ZEW economic sentiment index for Germany and the euro zone is published at 10 a.m.
Earnings season also gets underway in Europe, with French luxury group LVMH reporting after the bell while the U.K.’s JD Sports and French Connection and Switzerland’s Givaudan all reported Tuesday morning.
Reference: CNBC, Reuters, FXEmpire, ING, The Daily Star
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