Gold prices hit their highest in nearly eight years as investors pile into the safest of havens even after one of the biggest-ever one-day rallies in U.S. stocks. Global stock markets have followed the U.S. higher overnight on increasing signs that the Covid-19 pandemic is peaking. Oil prices are also rising again on hopes that major producers will cobble together a deal on cutting output by Friday. The euro zone’s finance ministers are set for another bust-up over common debt issuance, and U.K. Prime Minister Boris Johnson is stable and conscious after a night in intensive care being treated for Covid-19. Here’s what you need to know in financial markets on Tuesday, April 7th.
1. Gold hits highest since 2012
Gold prices hit their highest in nearly eight years, as a wave of money continued to flood into exchange-traded funds, bars and coins on expectations of a prolonged period of low or negative interest rates.
Gold futures for delivery on the Comex exchange hit a high of $1,742.20 a troy ounce overnight before retracing to hold just above $1,702 an ounce by 6:35 AM ET (1035 GMT). The premium over spot gold prices in London widened to almost $50 an ounce, amid further reports of trouble in sourcing enough physical gold to cover all the claims of U.S.-registered ETFs.
The latest surge came on the back of reports on Monday that the U.S. is preparing a fourth economic support package that could be worth around $1.4 trillion.
The sharp widening of budget deficits in the U.S. and Europe to fund the response to the Covid-19 crisis has encouraged heavy betting on currency debasement – even though most economists agree that the near-term effect of the crisis is more likely to be deflationary, rather than inflationary.
2. Oil rises further on hopes of output restraint deal
Crude oil prices rebounded again amid hopes that the world’s major producers will somehow cobble together an agreement to cut supply at a virtual meeting on Thursday. U.S. crude futures rose 3.1% to $26.91 a barrel, while Brent rose 2.4% to $33.83.
Reuters quoted sources within the OPEC+ format (which includes Russia) as saying that an agreement is likely, as long as other countries — most of all, the U.S. – join in.
Other reports suggested that the OPEC+ countries also want cuts from Canada and Brazil.
The inability of the U.S. government to impose a nationwide output cut has led some analysts to suspect that the deal will aim to target a price that is still low enough to squeeze marginal U.S. shale producers into bankruptcy. Some have observed that the current use of drilling rigs is consistent with a drop in U.S. production of 1 million barrels a day by the third quarter.
A meeting of G20 energy, which would include all the countries relevant to the discussion except Norway, is scheduled for Friday.
3. Stocks set to open higher as U.S. support package, European virus data lift spirits
U.S. stocks are set to open markedly higher again, supported by the reports of a fourth economic support package that broke in the U.S. afternoon on Monday.
The news, which helped to allay doubts about holes in the packages announced so far, drove one of the biggest ever rallies in the Dow Jones Industrials on Monday, pushing all the benchmark indices over 7% higher.
European and Asian markets have also rallied, taking their lead from the U.S. and from increasing data points in Europe that suggest the Covid-19 epidemic is peaking. Spain posted four straight days of declining deaths, while Italy and Germany announced further falls in new infections, and Denmark joined Austria in planning to lift some of its lockdown restrictions.
4. Johnson remains in intensive care
U.K. Prime Minister Boris Johnson remains stable and conscious in intensive care, after being hospitalized on Sunday evening in London.
Against a backdrop of growing doubt about the reliability of information being provided by the government Cabinet Minister Michael Gove insisted on Tuesday that the Prime Minister was not on a ventilator and promised a full statement in case his situation gets any worse.
Sterling and U.K. stocks were equally unfussed by the episode, joining in a broad risk-on rally in European markets. European Union finance ministers are due to hold another conference call about their pandemic response later Tuesday.
5. Fed moves to ease EM squeeze with $60 billion repo line to Indonesia
The Federal Reserve agreed to provide a $60 billion repo line to Indonesia, whose financial markets have suffered some of the worst stress in the emerging world as the Covid-19 virus has spread across one of Asia’s most important economies.
The country has been criticized for its relatively low level of testing for Covid-19 among its population of over 200 million. The official death toll of 221 is widely believed to understate the actual number (as in many countries, due to the exclusion of victims who do not die in hospitals).
The dollar had risen by some 20% against the Indonesian rupiah since the virus exploded in January. It has made similar, if less dramatic gains against many other emerging currencies, as markets price in a sudden stop of capital flows due to the looming recession. According to data from the International Institute for Finance in Washington, investors pulled some $83 billion from emerging markets in March alone.
The dollar edged higher in early European trade Wednesday, with the safe haven currency in demand as a resurgence of the coronavirus in the United States cast doubt over the strength of the economic rebound.
At 3:050 AM ET (0705 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.873.
There are almost 11.8 million COVID-19 cases globally as of July 8, according to Johns Hopkins University data, of which the U.S. has the highest known numbers of cases and deaths in the world.
A number of Federal Reserve officials expressed concern Tuesday that the surge in infections could adversely impact the economy just as some stimulus programmes are set to expire.
Atlanta Federal Reserve Bank President Raphael Bostic warned that the spike in the number of cases has made business owners “nervous again” and that ‘there is a real sense this might go on longer than we have planned for.”
Still, the rise in cases is not simply a matter for America. The AUD/USD pair lost 0.2% to 0.6935, with the Australian dollar weakening after the country’s second-largest city Melbourne re-imposed lockdown measures to curb the outbreak.
Elsewhere, GBP/USD gained 0.2% to 1.2559 after Prime Minister Boris Johnson said that the U.K. remains committed to working hard to find an agreement over trade with the EU. Chancellor of the Exchequer Rishi Sunak is due to announce details of the country’s latest fiscal stimulus package later Wednesday.
Sterling has gained around 0.6% this week against the dollar and 0.4% against the euro, but still remains one of the weakest G7 currencies as doubts still remain as to whether a trade deal will be signed by the end of the year.
Additionally, skepticism exists that a proposal by some of Donald Trump’s advisers to undermine Hong Kong’s currency peg would come to fruition, as such a move would be difficult to implement and risk hurting U.S. interests as much as it would punish China.
Oil retreats slightly on risk aversion
With one eye on the equity markets overnight, oil markets mirrored the response of currency markets, giving up some of their recent gains and slipping into range trading mode. Brent crude fell slightly by 0.70% to 42.90 a barrel. WTI eased by 0.70% to USD 40.50 a barrel.
Both contracts are unchanged this morning in Asia, with critical resistance on Brent crude at USD 44.00 a barrel, and on WTI at USD 42.00 a barrel. Only a fall below USD 40.00 a barrel for Brent crude, or USD 37.00 a barrel for WTI, would suggest that the rally in oil prices has run its course.
Oil prices continue to remain balanced between Covid-19 induced growth concerns, and recovery expectations in Asia and Europe. Oil’s downside is likely to be limited unless the US situation deteriorates dramatically. OPEC+ discipline is high, and the grouping will no doubt find the willingness to extend the headline cuts if the situation calls for it.
Excitement builds for gold longs as USD 1800.00 approaches
Anticipation is building in the gold fraternity, with Covid-19 concerns giving a haven boost to prices overnight. Gold rose 0.60% to USD 1795.00 an ounce, having tested USD 1797.00 an ounce earlier in the session. Gold’s grind higher is remorseless and pleasingly, appears to have detached itself from negative equity price action for now.
The USD 1800.00 an ounce region will be a tough nut to crack though. It capped gold’s advance multiple times from 2011 to 2012. I do not doubt that there will be substantial option related offers ahead of it to defend USD 1800.00 strikes. Nevertheless, gold is girding itself for the long-awaited assault on this critical resistance level. Gold had support at USD 1775.00 an ounce. Only a daily close below here would delay proceedings. Should USD 1800.00 an ounce give way, gold is likely to move quickly to the USD 1820-1830 zone, driven by stop loss and algorithmic buying.
Gold is unchanged in Asia today in yet another moribund session. It will probably be left to the New York market to get the job done.
Oil prices fell on Tuesday, erasing earlier gains, on concerns that the surge in coronavirus cases in the United States, the world’s biggest oil user, will limit a recovery in fuel demand.
U.S. West Texas Intermediate (WTI) crude (CLc1) futures fell 17 cents, or 0.4%, to $40.46 a barrel at 0340 GMT, after earlier rising to as high as $40.79.
Brent crude (LCOc1) futures declined by 19 cents, or 0.4%, to $42.91, after hitting an intraday high of $43.19.
With 16 U.S. states reporting record increases in new COVID-19 case in the first five days of July, according to a Reuters tally, there is mounting concern that public health measures to limit the virus spread will curb fuel demand.
Florida is re-introducing some limits on economic reopenings to grapple with rising cases. California and Texas, two of the most populous and economically crucial U.S. states, are also reporting high infection rates as a percentage of diagnostic tests conducted over the past week.
«The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,» said CMC Markets’s Chief Market Strategist Michael McCarthy in Sydney in an email.
The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.
However, those cuts are set to taper to 7.7 million bpd starting next month, adding supply at the same time U.S. fuel demand, especially for gasoline, remains impacted by the COVID-19 outbreak.
«Summer driving demand in the U.S. is low, keeping gasoline demand subdued, and a reintroduction of lockdowns is a major headwind,» ANZ said in a note.
Data from the American Petroleum Institute industry group later on Tuesday and the U.S. Energy Information Administration on Wednesday are expected to show a 100,000 barrel rise in gasoline stockpiles, six analysts polled by Reuters estimated.
The U.S. crude market faces some uncertainties from a court decision on Monday ordering the shutdown of the Dakota Access pipeline, the biggest artery transporting crude oil from North Dakota’s Bakken shale basin to Midwest and Gulf Coast regions, over environmental concerns.
Market sources in the Bakken said the closure of the 570,000-bpd pipeline, while a thorough environmental impact statement is completed, will likely divert some oil flows to transportation by rail.