Global Markets: Gold shines on falling dollar, yields; global stimulus supports shares

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August 5, 2020

SYDNEY Gold scaled a new high on Wednesday as a weaker dollar and falling bond yields burnished its safe-haven appeal, while shares ticked higher as investors turned their focus to stepped-up monetary and fiscal support globally.

Spot gold jumped to a record high of $2,030.72 per ounce on Wednesday as bond yields hit new lows. Prices have soared about 33% this year.

Risk assets such as equities have surged in recent months on massive policy stimulus from central banks and governments, but gold has also rallied in a sign of heightened uncertainty around the long-term effects of the global health crisis.

European futures started in green with Germany’s DAX futures up 0.4% and those for France’s CAC40 up 0.2%. Futures for London’s FTSE rose 0.37% while E-minis for the S&P 500 reversed early losses to climb 0.2%.

Analysts said equities would struggle a bit until the U.S. Congress agrees on a stimulus package and ahead of corporate earnings from tech giants later in the week.

White House negotiators have vowed to work “around the clock” to reach a spending deal by the end of the week.

Markets also latched on to comments from the president of Federal Reserve Bank of San Francisco that the U.S. economy will need more support than initially thought, sending long-term Treasury yields into a downward spiral.

“Failure to agree to another round of stimulus would hit the U.S. economy hard at a time when high-frequency data suggests it is losing some momentum,” said Tapas Strickland, analyst at Melbourne-based National Australia Bank.

The United States has reported more than 4.7 million coronavirus cases and over 157,000 deaths, the highest globally.

On Wednesday, MSCI’s broadest index of Asia Pacific shares outside of Japan rose 0.5% to a 6-1/2 month peak at 563.28 points.

Japan’s Nikkei, off 0.3% and Australia’s benchmark index, down 0.6%, were notable underperformers in Asia while Chinese shares were mildly weaker though still near a recent five-year peak.

South Korea’s Kospi bucked the trend to hit its highest level since October 2018.

On Wall Street, the Dow had ended up 0.6% on Tuesday, the S&P 500 rose 0.4% and the Nasdaq Composite added 0.4%.

“Significantly increased odds” of more monetary policy stimulus from the U.S. Federal Reserve is a key driver of equities although the rally has been reined in by stretched valuations, Mizuho analysts wrote in a note.

More central bank support is also dragging U.S. Treasury yields lower, led by the long-end of the curve, and helping “fire-up gold’s glitter”, they added.

GREENBACK UNDER PRESSURE

The dollar was under pressure with the safe-haven Japanese yen rising to 105.64 as the bond market’s dim view of the U.S. recovery sent real yields further into negative territory and nominal yields near record lows.

The risk-sensitive Australian dollar has risen more than 2% so far this year while the euro has climbed over 5% against the greenback.

The Aussie was last up 0.3% at $0.7184 while the common currency was inching toward a two-year high at $1.1811, buttressed by hardening perception that the U.S. rebound is lagging Europe.

Investors are now waiting for an Aug. 15 video conference where senior U.S. and Chinese officials are set to review a trade deal and likely air mutual grievances, according to sources.

China’s U.S. envoy on Tuesday said Beijing does not want tensions to escalate.

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In commodities, oil prices reversed early losses with Brent crude up 5 cents at $44.48 a barrel. U.S. crude added 2 cents to $41.72.

Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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Global Markets: Gold shines on falling dollar, yields; global stimulus supports shares

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