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Gold, silver fall following Fitch’s US rating cut

 

Thursday, August 03, 2023

Today’s headlines

What’s happening: Gold and silver closed lower on Wednesday, following a downgrade by Fitch Ratings.

What happened: Fitch Ratings slashed the US government’s credit rating on Tuesday.

However, the latest data from the US showed the economy adding a large number of private-sector jobs in July.

Why it matters: Gold rose in early trading on Wednesday, but pared gains to settle slightly lower due to strength in the US dollar and higher Treasury yields. Markets also digested the decision by Fitch Ratings to cut the US credit rating from AAA to AA+.

Fitch had warned earlier in the year that it was looking to downgrade the US credit rating. The rating house said it has lowered the rating due to expected fiscal deterioration over the next few years and the standoff on increasing the debt ceiling in May.

Following the downgrade, only one of the three top ratings agencies, Moody’s Investors Service, has the US credit rating as top-tier (AAA). Standard & Poor’s Global Rating was lowered in 2011.

The yield on the 30-year Treasury climbed from 4.104% to 4.165% on Wednesday, while the yield on the 10-year Treasury rose from 4.048% to 4.072% late Tuesday.

The US dollar also moved higher, exerting pressure on gold prices on Wednesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, added 0.2% to 102.55 on Wednesday.

Data released by payroll services firm ADP on Wednesday showed US private sector payrolls rising by 324,000 in June, surpassing market estimates of 189,000.

Gold futures for December delivery fell by $3.80, or 0.2%, to close at $1,975 per ounce on Comex, while silver for September delivery fell 45 cents, or 1.9%, to settle at $23.87 per ounce.

In other metals trading, palladium for September rose by 0.4% to close at $1,241.80 per ounce, while platinum for October delivery declined 1.1% to $930.40 per ounce and copper futures fell 1.7% to close at $3.84 per pound.

What to watch: Investors will watch interest rate decisions from major central banks, which could significantly impact gold prices ahead. Gold is generally considered as a safe investment during economic uncertainty but loses its appeal when interest rates move higher as the yellow metal yields no interest.

The Bank of England is scheduled to announce its policy decision on Thursday, with markets expecting interest rates to increase to a 15-year high.

The markets today

Qualcomm will be in focus today following the release of its fiscal third-quarter results

Context: Shares of Qualcomm declined in after-hours trading on Wednesday on weak quarterly sales.

Details: The San Diego, California-based company said it was planning job cuts as spending on gadgets remained weak amid the slowdown in global economic growth.

A weaker-than-projected rebound in the Chinese economy also negatively impacted the company’s orders, with smartphone shipments in the country falling 5% in the latest quarter.

Revenues from Qualcomm’s handset chip business declined 25% to $5.26 billion. The company reported quarterly revenues of $8.44 billion, representing a 23% year-over-year decline. The figure also missed market estimates of $8.51 billion. Earnings came in at $1.87 per share, topping Wall Street expectations of $1.81 per share.

Management guided to revenues of $8.1-$8.9 billion and earnings of $1.80-$2.00 per share for the fiscal fourth quarter, broadly in-line with expectations.

Qualcomm’s shares fell 6.9% to $120.40 in extended trading on Wednesday following the release of quarterly results. The stock had lost 2.1% during the regular trading session.

What are expectations: Investors will watch the global economic growth and recovery in the demand for gadgets.

Other Markets: European indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 1.36%, 1.36%, 1.26% and 1.35%, respectively.

The news shaping the markets

Brazil’s President Luiz Inacio Lula da Silva lashed out at the United Nations Security Council members for not stopping the Russia-Ukraine war. The news sent the safe-haven US dollar index slightly higher this morning.


China’s Caixin general services PMI rose to 54.1 in July, from a five-month low of 53.9 recorded in June. The latest figure also topped market estimates of 52.5 and lent support to the CNY/USD forex pair.


Australia’s retail sales fell by 0.8% in June, following 0.8% growth in the prior month, which sent the AUD/USD pair lower in forex trading this morning.


Singapore’s S&P Global PMI declined to 51.3 in July, from 54.1 in the previous month, exerting pressure on the SGD/USD forex pair.


Hong Kong’s S&P Global SAR PMI fell to 49.4 in July, from 50.3 in the prior month. The figure coming in below market estimates of 50.4 sent the HKD/USD pair lower in forex trading this morning.

What else to watch today

Germany balance of trade, sales of new cars, services PMI and composite PMI, Russia’s services PMI and composite PMI, France’s government budget value, services PMI and composite PMI, Turkey’s consumer price index, balance of trade, producer inflation and foreign exchange reserves, South Africa’s S&P Global PMI, Spain’s services PMI and composite PMI, Italy’s retail sales, services PMI and composite PMI, Eurozone’s producer prices, services PMI and composite PMI, UK’s services PMI, composite PMI and Bank of England interest rate decision, US Challenger job cuts, unit labour costs, nonfarm business sector labour productivity, initial jobless claims, continuing jobless claims, services PMI, composite PMI, ISM services PMI, factory orders and natural gas stocks change, as well as Brazil’s services PMI and composite PMI.


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