Gold prices hit new all-time highs on Monday, but Wall Street stocks fell from near record highs. Optimism that the Federal Reserve was about to cut interest rates faded as the strong U.S. economy refuted the need for near-term cuts.
Chinese shares led a rally across most of Asia overnight against a generally upbeat backdrop of the global economy, while the dollar rose after data showed the US manufacturing sector grew in March for the first time since September 2022.
What was an optimistic reading of headline US inflation last week quickly turned darker as the market weighed the strength of the US economy against the need for immediate interest rate cuts.
The three government measures of U.S. inflation – CPI, PPI and PCE – show the improvement has leveled off, leading to questions about when and by how much the Fed will cut rates, said Kevin Flanagan, head of fixed-income strategy at WisdomTree in New York.
“Markets are now reassessing what they thought would be a very aggressive rate cut, at least this year, but that may well not be the case,” Flanagan said.
“Whether they go in June or July or whatever, what’s it going to look like? Right now the data shows it’s not going to be uniform.”
Oil prices remained near five-month highs as markets expect tighter supply amid OPEC+ cuts and attacks on Russian refineries, while Chinese production figures support prospects for stronger demand.
The dollar index, a measure of the U.S. currency against its six major peers, rose 0.49%.
The Dow Jones Industrial Average fell 0.66%, the S&P 500 lost 0.26% and the Nasdaq Composite added 0%.
European markets were closed on Monday and most markets worldwide were closed on Friday.
Fed Chairman Jerome Powell said Friday that inflation data released that day “is what we expected” and that “you won’t see us overreact,” suggesting the U.S. central bank is content to remain in wait-and-see mode.
Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, said the Fed does not want to relive the 1970s, when cuts were made too early and inflation reignited.
“The potential for a cut keeps being postponed because Powell says almost in a giddy tone that this is a great environment. Interest rates are above average, not wild, but above average.
“We don’t need to cut them because the economy is doing so well,” he said. “It’s better to keep those cuts in your pocket.”
Friday’s report on the personal consumption expenditure (PCE) price index earlier boosted expectations for looser US monetary policy, sending gold to a new record high.
Gold pared gains as the dollar and bond yields rose. Gold prices tend to move inversely with interest rates because gold becomes relatively less attractive as interest rates rise.
Spot gold hit a record high of $2,265.49 an ounce earlier in the session. U.S. gold futures traded 0.9% higher at $2,236.50 an ounce.
U.S. Treasury yields rose after stronger-than-expected manufacturing data raised doubts about whether the Fed can deliver on the three rate cuts it forecast at its last policy meeting.
The yield on the two-year Treasury note, which reflects interest rate expectations, rose 9.4 basis points to 4.714%, while the yield on the benchmark 10-year note rose 13.3 basis points to 4.327%.
Japanese shares tumbled as the yen remained near levels that kept traders wary of a currency intervention. The yen hovered below 152 per dollar, leaving traders wary of an impending intervention.
Japan’s Nikkei tumbled 1.4% at the close, weighed on worries about an intervention in the yen that would hurt exporters’ profit expectations and returns for foreign investors.
Brent rose 42 cents to close at $87.42 a barrel, while U.S. crude closed 54 cents higher at $83.71 a barrel.
Tags: Gold rises shares fall optimism interest rate cuts disappears
-
