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Jan 11, 2019

WSJ I Markets: Gold Rally Shows Cracks on Renewed Economic Confidence.

The Wall Street Journal.
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Welcome back. Amrith Ramkumar here guiding you through the latest markets news with the S&P and Dow on pace for their first three-week winning streaks since August.
It has been a busy news day already. Apple is expected to release three new iPhone models again this fall, including a successor to the struggling XR. And Slack is planning to go public through a direct listing, potentially making it the second big technology company after Spotify to bypass a traditional IPO. 
Futures are slightly lower after major indexes finished higher for a fifth consecutive session. We'll get fresh inflation data this morning with investors closely scrutinizing the latest economic figures. 
Plus, I look at why some analysts are still cautious on gold despite the haven asset's recent rally. 
 

Markets in a Minute

Markets Data
 

Overnight Developments

  • Global stocks mostly edged higher following reassurance from the Federal Reserve that it would adjust its pace of tightening monetary policy if needed, as well as hopes for trade progress.
     
  • Read our full market wrap here
     
  • The view from Asia: Asian Currencies Lag Behind Global Rally
 

Stock Rebound Threatens Gold's Advance

Some are skeptical the metal can rise as Treasury yields also bounce back. 
Gold’s rally since late last year is already facing a challenge: renewed confidence in the U.S. economy and a rebound in stocks.

The S&P 500 sank 14% in the fourth quarter, driving investors into safer assets. Gold reaped the benefits, rallying 7.3%. Prices are currently near their highest level since June. 
But looking ahead, many investors remain largely confident that the U.S. economy will continue expanding. That means they will likely opt to ride out the volatility in stocks, rather than piling into havens like gold, analysts say.

The precious metal has also benefited from Federal Reserve comments that the central bank is willing to hit the brakes on its interest-rate increases in 2019 if growth slows. When rates don’t rise as fast, gold becomes more attractive relative to yield-bearing securities like Treasuries. A softer dollar also makes it cheaper for overseas buyers.

Yet those same Fed comments have also boosted stocks and other risky assets—a development that could potentially lure investors back into such markets.

In other words, the gold market risks a repeat of what happened during much of last year. Faith in U.S. growth dampened demand. Prices tumbled as much as 10%, hitting a roughly 18-month low in August. Meanwhile, the S&P 500 climbed as much as 9.6%, hitting multiple fresh records.

On Thursday, gold fell for the second consecutive session, while the benchmark equity gauge rose for the fifth straight day.
With gold, “the buying we’re seeing come in is cautious,” said Bob Haberkorn, senior market strategist at RJO Futures. “People are buying it mostly because of what’s going on with the Federal Reserve. That’s a different type of buying.”

The demand picture is mixed. Flows into gold-backed exchange-traded funds rose late in the year—topping $3 billion last month, according to the World Gold Council.

But hedge funds and other speculative investors have remained wary. Bullish bets on prices barely exceeded bearish wagers on gold during the week ended Dec. 18, according to the latest figures from the Commodity Futures Trading Commission.

Demand for physical bullion among retail investors has also been lackluster. Last year, annual sales of American Eagles, a popular gold coin that’s a proxy for retail sales, fell to their lowest level since 2007, U.S. Mint data show.

Prices also still haven’t cleared the closely-watched $1,300 level, indicating they could be stuck in their current range.

Market Facts

  • Macy's shares fell 18% Thursday, their largest percentage drop ever. The slide shed $1.7 billion in market value from the department store, putting its market cap at just over $8 billion. The fall came after Macy's lowered its full-year guidance following weak December sales.
     
  • No U.S. company rated below investment grade issued bonds between the end of November and Wednesday, the longest stretch without a high-yield sale in data going back to 1995, according to Dealogic.
     
  • About 47% of S&P 500 stocks outperformed the benchmark during 2018, slightly below the long-term average of 48%, according to Bank of America Merrill Lynch. Breadth was lower for much of the year, but increased during during the fourth quarter. Last year's total was still an improvement from 2017, when just 43% of stocks outperformed.

Key Events

The U.S. consumer-price index for December is out at 8:30 a.m. ET and is expected to fall 0.1% from a month earlier and rise 1.9% from one year earlier. Core prices, which exclude food and energy, are expected to rise 0.2% on the month and 2.2% on the year. 
The Baker-Hughes rig count is slated for 1 p.m. 
U.S. budget figures for December may be delayed due to the shutdown. (2 p.m.)
 

Must Reads

Chinese Vice Premier Liu He in Hamburg, Germany, in November 2018. PHOTO: CHRISTIAN CHARISIUS/ZUMA PRESS
Xi’s top trade aide to visit U.S. for talks this month. China and the U.S. are moving ahead with plans to hold a round of higher-level trade talks, though a planned meeting could be delayed by the government shutdown.
Investor reactions to the Fed’s comments have been all over the map. Here’s a guide on how to view the central bank’s latest moves from senior markets columnist James Mackintosh. 
The partial government shutdown is making it harder to read the economy. Everyone from Fed officials to investors and trade negotiators is grappling with gaps in data that some say could lead to policy mistakes or more market volatility.
Apple's pressing challenge. The tech giant has held out its fast-growing services unit as a bright spot in an outlook dimmed by soft iPhone demand. But the services business faces hurdles of its own.
The strong economy didn't save retailers from holiday blues. Continuing to lose customers to discounters and e-commerce, other retailers including Kohl's and Victoria’s Secret owner L Brands also posted tepid holiday sales, triggering a broad-based selloff in retail stocks.
Meet the new payment champions, same as the old ones. A few years ago, the payments landscape in the U.S. looked like it was up for grabs. Now that the dust is beginning to settle, it's clear that the winners are likely to be the same old credit-card companies that already dominated, Heard on the Street's Aaron Back writes.
Chinese Huawei executive is charged with espionage in Poland. Polish authorities detained and charged the sales director of Huawei's local office for allegedly conducting high-level espionage on behalf of a Chinese spy agency, amid widening global scrutiny by Washington and its allies of the technology giant.
 

What Else We've Heard on the Street

“The lesson from this holiday season is that strong consumer sentiment isn’t enough to lift all boats. Retailers that have had the capacity to invest heavily in updating stores and building out their digital operations have been able to pull ahead. Those that didn’t are falling farther behind.”
—Heard on the Street columnist Elizabeth Winkler
 

Stocks to Watch

PepsiCo: The food and beverage company said its board has elected CEO Ramon Laguarta as chairman.
Netflix: UBS upgraded shares of the streaming company to buy from neutral. 
Boeing: The S&P 500 industrials sector is up 4.2% so far this week, on track for its largest weekly advance since March, boosting the aerospace giant.
Synnex: The call-center operator that also distributes technology products reported a larger-than-expected increase in quarterly sales.
MongoDB: Shares of the packaged software company fell 13% Thursday, their largest one-day drop on record, after Amazon.com announced a document database service that represents direct competition.
Source: WSJ