Gold smashed as risk-taking picks up ahead of macro/micro storm

Headlines

* Bitcoin halving day arrives, prices, ETFs, miners bounce

* Dollar mixed as US rates and earnings take centre stage

* Gold drops more than 2.5% to one-week low as Middle East worries ebb

* S&P 500 rises to start the week, snapping six-day decline

FX: USD had a mixed day with underperformance versus high-beta currencies and gains against haven currencies, the euro and especially GBP. The DXY eventually settled little changed. Bulls will eye up 107 if they beat the recent high at 106.51. There are no Fed speakers as the FOMC is in the blackout period ahead of its May 1 meeting. Easing geopolitical tensions may see markets revert back to US exceptionalism and resilient data.

EUR printed an inside day closing marginally lower, but above the 1.06 support zone. Easing concerns in the Middle East are positive for the pro-cyclical euro. But that also lowers the chances that higher oil prices will force a delay of the European Central Bank’s cutting cycle. Rate cut bets are pretty solid with 75bps and the first move in June. There are lots of ECB speakers this week, who have been cementing that first reduction.

GBP initially tumbled again to fresh five-month lows, having plunged through 1.24 support on Friday. Deputy BoE Governor Ramsden said UK inflation was converging to the euro area as risks had now turned to the downside. The RSI is mildly oversold and buyers stepped in later in the session to claw back some losses.

USD/JPY beat recent multi-decade highs just below 155. This could be a “line in the sand” for Japanese authorities, though comments from BOJ Governor Ueda were unable to help the yen. He suggested late last week that a hike is likely if underlying inflation increases. Safe haven demand could wain hurting JPY. But US Treasury yields remain high and are not supportive for a yen comeback.

AUD was firmer amid a more favourable risk environment. The major printed a fresh year-to-date low at 0.6362 on Friday. CPI data is released on Wednesday. USD/CAD is down for a fourth straight day. It had struggled again above 1.38.

Stocks: US equities rebounded from their worst week of the year. Easing tensions in the Middle East helped risk sentiment. The broad-based benchmark S&P 500 finished 0.87% higher at 5010. The tech-heavy Nasdaq 100 added 1.02% to close at 17,210. These two indices broke their six-day losing streaks. The Dow Jones underperformed, rising 0.67% to settle at 38,239. Tech led the gains rebounding from last week’s sell-off. Nvidia bounced 4.3% after its 10% decline on Friday.  Tesla suffered its seventh consecutive day of losses, down nearly 20% during that period. This equalled its longest losing streak of consecutive days ahead of its earnings release after Tuesday’s US close. The EV maker is down over 65% from its all-time high of $409.97 in November 2021.

Asian Stocks: APAC futures are in the red. Markets traded mostly positive due to little escalation in the Middle East. The Nikkei 225 advanced but closed off its highs. The ASX 200 gained in nearly sectors with outperformance by mining stocks as copper hit fresh highs. China indices were mixed, with the mainland lagging due to US-China frictions. The Hang Seng outperformed with tech strength.

Gold plummeted, suffering its worst day in nearly two years. That was after rising 13 of the last 17 days. Prices peaked at $2431 on April 12.

Day Ahead – PMIs

PMI survey data is a lead indicator and should give us a pointer to how economies are faring at the start of the second quarter of 2024. The end of last year brought us some welcome news about recovery in the global manufacturing cycle. The latest signals point towards possible signs of a peak in the second half of 2024. The recent surge in oil and metal prices could dampen demand going forward. There is also the issue in the US around softer survey data contrasting with resilient official economic releases.

The Eurozone manufacturing PMI is seen nudging higher after the previous release revealed the smallest decline in output since April 2023. Services should be helped by an easing in cost-of-living pressures. That leaves the composite ticking further away from the 50 boom/bust line. From a policy perspective, the release will likely not alter ECB pricing. Expectations are anchored for a June cut with 75bps of cuts in total for 2024. UK PMIs have exceeded expectations in past six months. But the composite saw its first m/m drop in March and back-to-back declines could further hit GBP.

Chart of the Day – Gold tumbles finally …

Gold has been on a tear since the start of March, but that run was broken yesterday with the precious metal down over 2.6%. This year’s drivers have included Asian demand, with further central bank buying by the likes of the PBoC and consumer demand from India and China. Worries about inflation simmer, though real yields have risen which historically hurts gold, that is a zero-yielding asset.

With ETF buying still in the doldrums, the easing of Fed rate cut bets has also not helped. That means gold was really due to period of consolidation and correction. This also comes after a couple of recent failed attempts to break above $2400. Minor support comes in at $2326 and then a more important Fib retracement level (38.2) of this year’s rally at $2260.

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