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Trends & Analysis
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Trends & Analysis
News

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Gold rises on soft dollar, geopolitical concerns

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US stocks fell on Friday, but notched weekly gains

 

Monday, February 06, 2023

The news shaping the markets today

Ukrainian Defence Minister Oleksii Reznikov said that Russia plans to launch a major attack in the weeks ahead. Reznikov added that Ukraine had the soldiers and resources to resist the attack. The US dollar index rose by 0.12% this morning.


Saudi Arabia’s Riyad Bank PMI rose to 58.2 in January, from a three-month low of 56.9 in the prior month. Despite this being the 29th straight month of increase in the non-oil private sector, the SAR/USD forex pair remained broadly flat.


Australia’s retail sales contracted by 3.9% to A$34.47 billion in December, reversing from a 1.7% increase in the prior month. This marked the first decline in retail sales for 2022 and sent the AUD/USD lower in forex trading this morning.


Indonesia’s economy grew by 0.36% in the fourth quarter of 2022, marketing a slowdown from the 1.81% growth announced in the previous quarter. Although the figure came in slightly higher than the consensus estimate of 0.33%, the news exerted pressure on the IDR/USD forex pair.


Australia’s inflation rate, as measured by the Melbourne Institute’s Monthly Inflation Gauge, rose 0.9% in January, versus 0.2% in the prior month. This being the fifth consecutive month of increase sent the ASX 200 lower by 0.25% to 7,539.30 this morning.

 

What’s happening: Investors shorted shares of some of the big US companies on Friday, after the release of the NFP report.

What happened: The NFP (non-farm payrolls) report fuelled fears of the Fed continuing with rate hikes.

Investors remained on the sidelines despite another data release reflecting strength in the US economy.

Why it matters: The Bureau of Labor Statistics said that the US economy had unexpectedly added 517,000 jobs in January 2023, the largest figure since July. The headline figure was not only higher than the average monthly gain of 401,000 in 2022, but also came in significantly higher than the market expectations of 185,000.

The January job adds were widespread, although the leisure and hospitality sector added the most jobs, at around 128,000. The healthcare sector added another 58,000.

The US unemployment rate eased to 3.4% in January, the lowest level since May 1969. The figure was also better than forecasts of 3.6%. The number of unemployed people in the country declined by 28,000 to 5.69 million. This report followed the jobless claims report, which showed a decline in weekly claims to nine-month lows.

A strong labour market gives Federal Reserve policymakers more wiggle room to continue with their monetary tightening measures.

The ISM Services PMI further reflected strength in the US economy. The figure unexpectedly improved to 55.2 in January, from more than a two-year low of 49.2 in December. Experts had expected the index to move into the expansion zone in January but had projected it to reach only around 50.4.

Investor sentiment was further hit by the Big Tech As, namely Apple, Amazon and Alphabet, reporting disappointing quarterly results.

The S&P 500 lost 1.04% to reach 4,136.48, while the Nasdaq 100 declined by 1.59% to 12,006.95 on Friday. Despite the decline, the S&P 500 added around 1.6% for the week, representing its fourth gain in five weeks. The Nasdaq rose more than 3.6%, its fifth straight week of gains. Meanwhile, the Dow Jones index slipped 0.38% to 33,926.01 on Friday, losing around 0.3% in the week.

Some of Friday’s biggest losers included Amazon, Ford, Lumen Technologies, Intuit, Dollar Tree, Starbucks, Home Depot, 3M, Walt Disney, and Salesforce.

What to watch: Investors await data on balance of trade and initial jobless claims due to be announced later this week. Markets also await companies like Activision Blizzard, Simon Property Group, ON Semiconductor, Tyson Foods, Pinterest and Take-Two Interactive Software to report their quarterly results on Monday.

The markets today

Oil will be in focus today after falling to around three-week lows on Friday

Context: Both WTI and Brent crude declined on Friday on concerns triggered by the US jobs report.

Details: Job growth in the US accelerated sharply in January, with 517,000 jobs added in the month. The figure was January 2023, the largest figure was meaningfully higher than the 223,000 job adds announced in December last year as well as the consensus forecast of 185,000.

A persistently resilient labour market raised concerns around the Federal Reserve continuing to hike interest rates, which has a dampening effect on the US economy and, consequently oil demand. Moreover, higher interest rates support the US dollar. Any gain in the greenback makes oil more expensive for foreign currency holders.

The US dollar index, which measures the greenback’s performance versus a basket of currencies, rose 1.22% to close at 102.99 on Friday.

Investors remained cautious about oil even as reports of Saudi Arabia reducing supply did the rounds. A Bloomberg survey showed the OPEC’s crude oil production declining by around 60,000 barrels per day (bpd) in January. This was led by Saudi Arabia’s reduction in production by 100,000 bpd, which was offset to some extent by slight gains by other members.

The G7 nations and the EU agreed to impose a $100 per barrel cap on the sales of Russian petroleum products, including diesel.

WTI crude for March delivery lost $2.49, or 3.3%, to close at $73.39, after a volatile trading session on Friday. Brent crude futures fell $2.23, or 2.7%, to $79.94 a barrel.

What are expectations: Investors await news on the G7 and EU coalition discussing a $60 price cap on Russian crude in March. Markets also look forward to the EIA’s report on US crude stockpiles, scheduled to be reported on Wednesday.

Other Markets: European indices closed mixed on Friday, with Stoxx 600, CAC 40, and FTSE 100 up by 0.34%, 0.94%, and 1.04%, respectively, and the DAX and IBEX 35 down by 0.21% and 0.04%.

Support & resistances for today

Technical Levels News Sentiment
AUD/USD – 0.69255 and 0.69477 Negative
WTI Crude – 73.671 and 73.758 Negative
DAX 40 – 15354.9 and 15369.4 Positive
Nasdaq 100 – 12509.6 and 12531.9 Negative
Silver – 22.455 and 22.518 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0800, -0.01%) Dow ($33,882, -0.24%) Brent ($80.16, 0.28%)
GBP/USD (1.2060, 0.03%) S&P500 ($4,132, -0.37%) WTI ($73.47, 0.11%)
USD/JPY (131.60, 0.32%) Nasdaq ($12,567, -0.45%) Gold ($1,891, 0.78%)

What else to watch today

Eurozone’s S&P global construction PMI and retail sales, France’s S&P global construction PMI, retail sales and budget balance, Germany’s S&P global construction PMI, factory orders and new car registrations, UK’s new car sales and S&P global construction PMI, Brazil’s car production, Canada’s Ivey PMI, Italy’s new car registrations, Spain’s consumer confidence and ECB President Lagarde’s speech.


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