By Marc Jones and Rae Wee
LONDON/SINGAPORE (Reuters) -Gold and silver prices remained jittery on Wednesday after the sharpest pullback in over five years, while global equity and bond markets were taking a breather from recent rallies.
Gold, which remains on course for its strongest year since the 1979 oil crisis, dipped below $4,100 an ounce in London trading, continuing the bout of profit taking that sunk it more than 5% on Tuesday. [GOL/]
There has been no obvious catalyst for the plunge other than general altitude sickness after a blockbuster run amid uncertainty about a reshaping of the world order.
EUROPEAN STOCKS DRIFT LOWER, BONDS STEADY
“Gold was massively stretched, massively overbought. There’s been a lot of FOMO (fear of missing out) going into that market,” said Tony Sycamore, a market analyst at IG, adding that tech stocks and some other markets were in a similar position.
“For some of these other frothy markets, we’re seeing little flash crashes now … We’re just seeing little tremors in markets, and potentially there’s something more significant to come.”
Europe’s STOXX 600 index drifted down 0.3% after it got close to a new record high on Tuesday, and most large Asian bourses edged lower overnight.
Geopolitics remained front and centre with a planned summit between U.S. President Donald Trump and Russian President Vladimir Putin now in doubt and ambiguity too over a potential meeting between Trump and China’s President Xi Jinping.
The selloff in gold injected some volatility into the broader markets overnight, but it did little to knock other safe-haven assets like bonds.
European government debt yields were largely steady after 10-year U.S. Treasury yields – often the biggest driver of global borrowing costs – had recorded a 1-year closing low.
Investors scooped up UK ‘gilts’ too after data showed Britain’s consumer price inflation and a key underlying measure of price growth unexpectedly held steady in September.
That pushed interest rate futures to price a roughly 75% chance the Bank of England will now cut UK rates to 3.75% from 4% at its December meeting, up from about 46% before the data.
Meanwhile, French bonds held around 3.35% as traders wait to see if Moody’s follows S&P in cutting France’s credit rating on Friday, and for a European Central Bank meeting next week.
Asia’s focus had been news from Japan that new Prime Minister Sanae Takaichi is preparing an economic stimulus package likely to exceed last year’s 13.9 trillion yen ($92.19 billion) to help households tackle inflation.
The Nikkei saw a late rally but MSCI’s broadest index of Asia-Pacific shares outside Japan ended down 0.4%. Nasdaq and S&P 500 futures were also beginning to slip again in Europe after a mixed Wall Street session on Tuesday.
Shares of Netflix sank nearly 6% after the bell as the streaming giant missed Wall Street’s third-quarter earnings targets, while General Motors’ stock surged 15% after the company raised its profit outlook. Tesla numbers are due later. [.N]
In currencies, the yen pared some gains to leave it at 151.64 per dollar after the stimulus report.
The package marks Takaichi’s first major economic initiative since the advocate of big fiscal spending took office on Tuesday, reflecting her commitment to what she calls “responsible proactive fiscal policy.”
The Bank of Japan also meets next week, where market expectations are for the central bank – like the ECB in Europe – to stand pat on rates.
“The likelihood of a rate hike in October has remained low for some time,” said analysts at Morgan Stanley MUFG Securities in a note.
WAITING ON CENTRAL BANK CUES
The U.S. Federal Reserve also announces its rate decision next week, and investors have almost fully priced in a 25-basis-point rate cut.
The dearth of U.S. economic data due to the ongoing government shutdown means that policymakers could be left flying blind at the meeting, a less-than-ideal situation as they remain divided over which risks deserve the most attention.
Trump on Tuesday rebuffed a request by top Democratic lawmakers to meet until the three-week-old U.S. government shutdown ends.
The shutdown has in turn left currencies largely rangebound over the past few sessions due to the lack of fresh catalysts from data releases, though the dollar edged up slightly on Wednesday. [/FRX]
(Reporting by Rae Wee. Editing by Kim Coghill and Mark Potter)
