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Gold trading reminder: The US dollar and US Treasury yields rose to a two-week high, gold prices fell to a two-week low, and a large wave of data is coming
2024-06-27
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In the early trading of Asian market on Thursday (June 27), spot gold fluctuated narrowly below the 2,300 mark and is currently trading around $2,298.02 per ounce. Gold prices fell 1% on Wednesday, hitting the lowest level in more than two weeks at $2,293.51 per ounce, closing at $2,297.96 per ounce, affected by the strengthening of the US dollar and rising Treasury yields, while traders awaited US inflation data to be released later this week.
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Bart Melek, head of commodity strategy at TD Securities, said: "At present, the market is likely to be reacting to the strengthening of the US dollar, and we continue to digest the possibility that the US Federal Reserve (Fed/FED) is unlikely to adjust (interest rates) earlier in the summer."
The US dollar rose 0.4% on Wednesday, hitting a nearly two-month high of 106.13 during the session and closing at 106.05, making gold more expensive for investors holding other currencies, and the US 10-year Treasury yield also rose to a two-week high.
Federal Reserve Governor Bowman said on Tuesday that keeping the policy rate unchanged for "some time" may be enough to control inflation, but reiterated his willingness to raise borrowing costs if necessary.
U.S. new home sales fell to a six-month low in May, missing expectations. Data from the Commerce Department showed that new home sales plunged 11.3% from the previous month to a seasonally adjusted annual rate of 619,000 units in May. The dollar reacted flatly to the data, while evidence is growing that the world's largest economy is slowing.
The next focus of the market will be Friday's release of the U.S. personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation indicator. Investors will want to see whether price pressures in the economy are moving in the right direction. If the data is lower than expected, it may prompt investors to increase bets on interest rate cuts this year, thus easing some pressure on the yen.
"Relative to the CPI (consumer price index), the PCE data is unlikely to move much," said Eugene Epstein, head of North American structures at Moneycorp in New Jersey. “Nevertheless, it would take a very big change in PCE to change the rate-cutting dynamic.”
U.S. Treasury yields rose on Wednesday as inflation picked up in other countries and markets worried that Japanese authorities would intervene to boost the yen and month-end liquidity.
Data released on Tuesday showed higher-than-expected inflation in Canada, which boosted U.S. Treasury yields. It was Australia’s turn on Wednesday, as consumer inflation accelerated to a six-month high in May, catching traders off guard and raising the odds that another rate hike this year will be on the cards.
With no major U.S. economic data on Wednesday, yields rose ahead of the government’s sale of $70 billion in five-year notes, part of the Treasury’s total $183 billion in Treasury auctions this week. Ultimately, however, the auction received solid demand, with a winning rate of 4.331%, lower than the yield in the secondary market when bids closed, suggesting investors were willing to pay a premium, analysts said.
“A lot of investors are trying to participate in the auction because it’s a way to get some bonds on the books without actually exposing themselves to liquidity constraints,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.
The five-year Treasury yield rose after the auction and was last up 8 basis points at 4.339%.
The yen fell to its lowest level against the dollar since 1986, raising concerns that Japanese authorities will intervene again to boost the yen.
“The market is a little concerned that Japan will have to sell Treasuries to intervene in the foreign exchange market, which will push yields a little higher,” Goldberg said.
Meanwhile, as the end of the month and quarter approaches, liquidity in money markets may face challenges as traders close their books, weighing on Treasuries.
“People are a little concerned about what’s happening with repo (repurchase agreements) at the end of the month, and there could be some pressure there,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.
On Wednesday, traders of futures contracts tied to the policy rate were betting on a total of 44 basis points of rate cuts in 2024. Friday's personal consumption expenditures (PCE) price index will be a key factor for investors to assess the extent of this year's rate cuts.
The 10-year Treasury yield rose about 8 basis points to 4.316% on Wednesday; the 30-year Treasury yield rose 7 basis points to 4.447% on Wednesday. The two-year Treasury yield, which tends to better reflect monetary policy expectations, rose nearly two basis points to 4.749% on Wednesday.
The results of the Federal Reserve's annual "stress test" released on Wednesday showed that large U.S. banks will have enough capital to withstand severe economic and market turmoil, but these banks will face greater hypothetical losses this year due to higher portfolio risks.
The test results show that 31 major banks will withstand the test of rising unemployment, volatile markets and sharp declines in residential and commercial mortgage markets, and will still have enough capital to continue lending.
Investors still need to pay attention to news related to the geopolitical situation. The Syrian military issued a statement in the early morning of the 27th saying that many locations in southern Syria were attacked by Israeli air strikes late on the 26th, killing 2 people and injuring 1 person.
The statement said that at about 23:40 local time on the 26th, Israel launched air strikes on multiple locations in southern Syria from the Golan Heights it occupied, and the Syrian air defense system shot down some missiles fired by the enemy. The air strike killed two people, injured one soldier, and caused some material losses.
However, a senior US official said on Wednesday that US President Biden's senior aides told the visiting Israeli Defense Minister this week that Washington is continuing to suspend the delivery of heavy bombs to Israel while reviewing the issue.
Speaking to reporters about the meeting between US National Security Advisor Jake Sullivan and Israeli Defense Minister Yoav Gallant, the official said that the allies are still discussing the powerful munitions, which Biden had suspended in May for fear that they would cause more Palestinian civilian deaths in Gaza.
It should be reminded that the market is also paying attention to the US first quarter GDP data to be released on Thursday and the important debate between President Biden and Republican presidential candidate Trump on Thursday. In addition, pay attention to changes in the number of initial jobless claims in the United States and the monthly rate of durable goods orders in the United States in May.
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
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