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What’s happening: Gold rallied on Tuesday, as investors waited for the US Federal Reserve’s interest rate decision.
What happened: Gold surged past the key resistance level of $2,000, as investors waited for comments from Fed policymakers.
Softness in the US dollar also lent support to the safe-haven yellow metal.
Why it matters: Markets are already pricing in a rate hike of 25 basis points by the Federal Reserve, when it announces its policy decision later today. This would take the US federal funds rate to 5.00%-5.25%.
While the move is widely expected, investors await comments from policymakers regarding their plans for the rest of the year, looking for signs that the US central bank may pause its rate-hike cycle.
Investors also added more gold to their portfolio amid renewed concerns around a banking crisis, after news of First Republic Bank’s failure and the subsequent purchase of a majority of its assets by JPMorgan Chase.
Softness in the US dollar also increased the appeal for gold, as it made the yellow metal cheaper for foreign currency holders. The US dollar index, which measures the greenback’s performance versus a basket of major currencies, declined by 0.21% to 101.94 on Tuesday.
The US Department of Labor’s JOLTs (Job Openings and Labor Turnover Survey) report showed continued softening of demand for labour. Job openings in the US fell to 9.590 million in March, hitting the lowest level in two years, from 9.974 million in February.
Markets were also disappointed with US factory orders. Orders for manufactured goods in the US rose 0.9% in March. Although this marked a rebound from two straight months of decline, the figure fell short of market expectations of 1.1% growth.
XAU/USD hit a daily low of $1978.58 before trading higher to breach the $2,000 mark. Gold futures ended Tuesday’s trading session at $2,025.10, up 0.09%. Silver futures added 0.02% to settle at $25.625.
What to watch: Investors await the US Federal Reserve’s rate decision today as well as comments from policymakers to get insights into whether the central bank may keep interest rates unchanged till the end of the year.
Context: Shares of Starbucks tanked in the after-hours trading session on Tuesday, despite the company reporting upbeat quarterly results.
Details: Starbucks reported its fiscal second-quarter revenues and earnings ahead of market views, driven by sales in the US and China.
Revenues grew 14.2% to $8.72 billion, exceeding the consensus estimate of $8.4 billion. Adjusted earnings came in at 74 cents per share, topping Wall Street expectations of 65 cents per share.
US customers showed great resilience, continuing to buy a range of the company’s products despite much higher menu prices. Meanwhile, Starbucks reported same-store sales growth in China, its second-largest market, for the first time since the fiscal third quarter of 2021. Overall, the coffee giant’s comparable sales grew 11% in the latest quarter, versus market expectations of around 7% growth.
Investors were disappointed by the company reaffirming its guidance for the full year, expecting a raise amid such strong quarterly results. Instead, the newly appointed CEO, Laxman Narasimhan, said Starbucks stores could do better to meet demand, while CFO Rachel Ruggeri warned that earnings growth in the current quarter could be “meaningfully lower” than the full-year guidance range of 15%-20%.
Shares of Starbucks fell 5.12% to $108.60 in the after-hours trading session on Tuesday.
What to watch: Investors await more details of the CEO’s plans to revamp stores and improve execution with investments in technology and innovation.
Starbucks has been trying hard to stem the growing unionisation efforts at some of its stores. Markets will monitor developments on this front too.
Other Markets: US indices closed lower on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.08%, 1.16% and 1.08%, respectively.
US authorities warned Russian President Vladimir Putin of an arrest if he attends the BRICS summit in South Africa in August. Despite continuous geopolitical concerns, the safe-haven US dollar index remained under pressure this morning.
New Zealand’s unemployment rate remained unchanged at 3.4% in the first quarter of 2023. The figure came in better than the consensus estimate of 3.5% and lent support to the NZD/USD forex pair.
Australia’s Judo Bank Services PMI rose to 53.7 in April, from 48.6 in the previous month. The figure signalled the fastest expansion in the country’s service sector in 12 months and sent the AUD/USD pair higher in forex trading this morning.
Brazil’s trade surplus widened to $8.22 billion in April, from $8.21 billion in the year-ago month. Although the figure missed market expectation of $8.6 billion, the BRL/USD forex pair remained broadly flat after the news.
The American Petroleum Institute reported a decline in US crude stockpiles by 3.939 million barrels in the week ended April 28, following a contraction of 6.083 million barrels in the previous week. Despite this, WTI crude prices continued to decline this morning.
US S&P Global Composite PMI, ISM Services PMI, ISM Services Employment, and EIA crude oil stockpiles, Russia’s unemployment rate, Brazil’s interest rate decision, Australia’s balance of trade, China’s Caixin Manufacturing PMI, Germany’s balance of trade, and Spain’s unemployment rate.
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