Oil prices and bitcoin shot higher yesterday, while stocks were subdued ahead of crucial China-US trade talks.
Gold prices were held back as the dollar spent most of the day higher, which makes it more expensive for buyers of the dollar-denominated metal using other currencies.
The precious metal has hit near six-year highs in recent days as investors sought safe haven assets amid rising tensions between Iran and the United States.
The dollar wobbled as the currency market tried to guess and second-guess the US Federal Reserve’s next move.
On Tuesday, top Federal Reserve officials dented hopes for a big cut in US interest rates, after having last week raised expectations that the central bank would soon announce its first rate reduction in more than a decade following downbeat US economic data.
Data released Wednesday showed US durable goods orders fell in May, helping push the closely watched economic indicator to its lowest level in 16 months and reinforcing the case for a rate cut.
But the Fed is concerned about demonstrating its independence as US President Donald Trump steps up political pressure by ridiculing Fed boss Jerome Powell – saying the United States would do better under Mario Draghi, the current European Central Bank chief.
That raised uncertainty about which course the bank would take.
Meanwhile, with Trump and Chinese counterpart Xi Jinping due to meet on the sidelines of the G20 summit in Japan later this week, stock markets got a brief boost from comments from Treasury Secretary Steven Mnuchin that suggested a US-China trade deal was 90% done.
“The only problem is that, a month ago, the two sides were only 5% away from a deal,” said Chris Beauchamp, chief market analyst at online trading firm IG.
“Thus the bounce has been relatively short-lived, with the mood music suggesting that neither side is aiming to come away with a deal, and indeed both are preparing for more tariffs and further conflict,” he added.
Trump, who has already hit $200bn of Chinese imports with levies in an effort to force Beijing into making a deal, warned China yesterday of an even deeper trade war, by indicating he is ready to slap tariffs on more than $300bn worth of remaining goods.
European markets closed mixed while US markets were up heading into midday trades.
London’s FTSE 100 was down less than 0.1% at 7,416.93 points, Frankfurt’s DAX 30 gained 0.1% to 12,245.32 and Paris’s CAC 40 lost 0.3% to 5,500.72 points at close yesterday.
A drop in US crude stockpiles have provided support to oil prices meanwhile.
“WTI and Brent crude surged after the Energy Information Administration report showed a huge drop in US inventories,” noted market analyst David Madden at CMC Markets UK.
Concerns about demand have recently weighed on crude prices.
Elsewhere yesterday, bitcoin surged to an 18-month high close to $13,000 on continued demand after Facebook recently unveiled plans for its own cryptocurrency.
Meanwhile, sterling edged back towards five-month lows yesterday after the top contender to replace Prime Minister Theresa May reaffirmed his desire to take Britain out of the European Union with or without an agreement.
Boris Johnson told the BBC he was “serious” about leading Britain out of the EU on the October 31 deadline without a deal if the bloc refused to negotiate a new exit agreement. It has repeatedly said it is not willing to reopen negotiations.
“We are heading for a showdown - a no-deal Brexit; a general election; or a second referendum,” said Derek Halpenny, European head of global markets research at MUFG bank in London.
“The pound is set to come under renewed downward pressure over the coming weeks with no deal still very much under-priced.”
bank of England Governor Mark Carney said yesterday it would only cut its economic forecasts to reflect the risk of a no-deal Brexit if Britain’s next prime minister makes leaving the European Union without a transition agreement his preferred policy.
Carney’s comments to the British parliament’s Treasury Committee did little to move sterling, however.
Against the dollar, the pound slipped 0.1% lower at $1.2680, after reaching a five-month low of $1.2507 last week. Versus the euro, the pound weakened to 89.72 pence.
The next Conservative Party leader will be elected by the end of July, leaving only a few months to try to renegotiate the Brexit withdrawal agreement.
CFTC data at the end of last week showed traders had cut “net sterling shorts” by $563mn, but remained heavily short the pound.
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