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By Florence Fabricant
Gold Futures Settle At 2-1/2-year Low As Dollar Continues To Rise
Gold prices fell on Monday, as the dollar continued its march up north amid bets the Fed will continue to aggressively hike interest rates in the coming months to combat inflation.
The dollar index surged to 114.53 a new 2-decade high, and despite dropping to 114.25, is up nearly 1% from Friday’s close.
A renewed selloff in British gilts pushed euro zone yields higher after Britain’s new chancellor Kwasi Kwarteng announced a sweeping package of tax cuts.
The Fed and other central banks have indicated they plan to continue raising rates in an effort to combat stubbornly elevated inflation.
Gold futures for December ended lower by $22.20 or about 1.3% at $1,633.40 an ounce, the lowest settlement in nearly 30 months.
Silver futures for December ended down $0.430 at $18.480 an ounce, while Copper futures for December settled at $3.2945 per pound, down $0.0485 from the previous close.
Markets now look ahead to data on U.S. durable goods orders, consumer confidence, new home sales and personal income and spending, all due over the course of this week.
Ten-Year Yield Spikes To Highest Level In Over Twelve Years
After a modest pullback to start the session, treasuries saw further downside over the course of the trading day on Monday.
Bond prices slid more firmly into negative territory as the day progressed, closing sharply lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, skyrocketed 18.1 basis points to 3.878 percent.
With the substantial increase on the day, the ten-year yield ended the session at its closing level since April 2010.
The sharp pullback by treasuries came amid continued strength in the value of the U.S. dollar, with the greenback hitting a record high versus the British pound.
Aggressive interest rate hikes by the Federal Reserve continue to contribute to the increase by the dollar along with Britain’s new chancellor Kwasi Kwarteng’s announcement of a sweeping package of tax cuts.
The U.S. dollar’s continued strength suggests the currency is the preferred safe-haven asset, reducing the appeal of bonds.
Concerns about the outlook for interest rates also weighed on treasuries, as the Federal Reserve and other central banks have indicated they plan to continue raising rates in an effort to combat stubbornly elevated inflation.
Reports on durable goods orders, consumer confidence and new home sales are likely to attract attention on Tuesday along with remarks by Fed Chair Jerome Powell.
Oil Futures Settle Near 9-month Low On Demand Worries
Crude oil prices tumbled to near 9-month lows on Monday, extending losses from the previous session, amid rising concerns about the outlook for fuel demand due to increasing possibility of a global recession.
The dollar’s continued strength weighed significantly on oil prices.
The dollar index surged to a fresh tw0-decade high today, climbing to 114.53.
West Texas Intermediate Crude oil futures for November ended lower by $2.03 or about 2.6% at $76.71 a barrel.
Brent crude futures were down $2.05 or 2.41% at $82.98 a barrel a little while ago.
Both WTI crude futures and Brent futures shed more than 5% on Friday.
Last week’s announcement of the biggest package of unfunded tax cuts by British Chancellor of the Exchequer Kwasi Kwarteng has raised fears about the stability of U.K. government finances.
The Pound Sterling tanked against the U.S. dollar, falling to a record low of $1.0382 today.
China Maintains Loan Prime Rates
China left its main lending rates unchanged on Tuesday, as widely expected, after lowering the rates last month.
The People’s Bank of China retained its five-year loan prime rate, or LPR, the benchmark for mortgage rates, at 4.30 percent.
The bank had reduced the five-year LPR rate by 15 basis points each in August and May and by 5 basis points in January.
The one-year loan prime rate was left unchanged at 3.65 percent after cutting it by 5 basis points in August.
The LPR is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. The LPR replaced the central bank’s traditional benchmark lending rate in August 2019.
Earlier this month, the one-year medium-term lending facility, the forerunner of LPR, was kept unchanged.
On Monday, the PBoC had lowered the rate on 14-day reverse repo operations to 2.15 percent from 2.25 percent. The bank injected CNY 10 billion via 14-day reverse repos and CNY 2 billion through 7-day reverse repo operations.
The recent tightening stance of PBoC’s major counterparts has resulted in the yuan’s depreciation.
Despite the weakness in the currency, markets widely expect policymakers to respond with more measures as the economy struggles to achieve growth target of around 5.5 percent this year.
European Economics Preview: Eurozone Current Account Data Due
Current account data from the euro area is due on Tuesday, headlining a light day for the European economic news.
At 2.00 am ET, Destatis is scheduled to issue Germany’s producer price data. Producer price inflation is seen at 37.1 percent in August versus 37.2 percent in July.
At 3.00 am ET, the State Secretariat for Economic Affairs releases Swiss August economic forecast.
At 3.30 am ET, Sweden’s central bank announces its monetary policy decision. The bank is forecast to raise its key rate to 1.50 percent from 0.75 percent.
At 4.00 am ET, the European Central Bank publishes euro area current account data. The current account surplus is seen at EUR 5.3 billion in July versus EUR 4.2 billion in June.
In the meantime, industrial output, producer prices and corporate sector wages figures are due from Poland. Industrial output growth is expected to rise to 9.9 percent in August from 7.6 percent in July. Producer price inflation is seen at 24.5 percent versus 24.9 percent in July.