Highlight of the Day
Gold’s safe-haven status is faltering on buoyant economic activity, powered by vaccinations and U.S. stimulus
The gold market has lost its glint so far, dashing the hopes of people who predicted that lavish stimulus spending by central banks and governments would send bullion prices to new heights this year
Robust U.S. growth has unexpectedly strengthened the dollar. A stronger greenback makes many commodities more expensive for buyers using other currencies
3 likely scenarios to play out for gold from here —
• Fed Reserve raising interest rates sooner than it says to curb inflation could send gold prices spiraling lower
• Fed officials are correct in projecting that a spurt of inflation this year will be short-lived and that the central bank will keep rates near zero through 2023, which could see upside momentum in gold prices
• Global supply chain disruptions for vital products such as electronic chips and plastics, or other likewise factors could generate higher and longer-lasting inflation than investors or the Fed currently predict. This might depress real bond yields and boost gold
Some investors remain bullish on gold and see now as a time to buy —
“A sustained rise in inflation-adjusted bond yields would suffocate the real economy considering the enormous amounts of debt that have come to the market,” Daniel Egger, CIO at Switzerland’s St. Gotthard Fund Management, said.
Market Highlights at 07:15 a.m. I.S.T.
• The MSCI Asia Pacific ex-Japan is trading higher 0.05%, and the MSCI Emerging Market index is up 0.01%
• Trends on SGX Nifty look poised for a muted opening for Nifty 50 in India. The Nifty futures are trading 6 points, or -0.47% lower at 14,920 on the Singaporean Exchange at 07:15 a.m. I.S.T.
• U.S. equity futures edged higher in early morning trade; alongside a steady and positive start in Asia-Pacific benchmarks gauges in early Monday trade amid Easter holidays in China, Hong Kong and Australia with shares rising in Japan and fluctuating in South Korea; a positive MSCI Asia-Pacific ex-Japan index; U.S. dollar dipping marginally to 92.95 with 10-Yr Treasury Yields easing back to 1.70% after rising amid President Biden’s infrastructure initiative of $2 trillion, which is seen to bolster economic growth and debt issuance and Gold futures sliding to $1,728 an ounce indicate a mixed and volatile outlook in Indian equity markets amid channel-wise resistance
• Biden is planning to raise the U.S. corporate tax rate to 28% from the 21% levy set by the Trump administration’s 2017 tax bill, which had previously been a support for stocks. S&P 500 earnings could take a 7.4% hit from the proposed tax plan, including the higher corporate rate, according to UBS equity strategists
India Markets
India’s equity benchmarks climbed on Thursday trade, and formed a bullish candle on the daily chart with a long lower wick, which reflected buying at lower levels
The blue-chip NSE Nifty 50 index added 176 points or 1.20% to 14,867 and the benchmark S&P BSE Sensex added 520 points or 1.05% to close at 50,029
Bank Nifty added 554 points, or 1.66%, to settle at 33,858
Broader markets out-performed headline peers — Midcap 100 index added 1.74%; Smallcap 250 index added 1.97% and Nifty 500 added 1.34%
Nifty P/E for Apr. 01 increased to 33.60 from 33.20 with Nifty P/B rising to 4.25 from 4.20, as recorded by NSE India
India VIX or the barometer of nervousness in the market, fell 3.16% from 20.64 to 19.98 levels
Overnight Call Money rate weighted average stood at 3.22% as per RBI data. It moved in a range of 1.90 — 3.50% for Mar 30
Under Liquidity Operations by RBI, Reverse Repo for the week (Mar 22 to Mar 28) stood below 5 lakh crores (4.93 lakh crores), marking lower surplus liquidity in the market
Yield curve on the benchmark 10-Yr government bond steepened to 6.17%, while the rupee weakened to 73.3700 per U.S. dollar
Indian firms that lend against gold such as Muthoot Finance and Mannapuram Finance are cutting tenures and seeking more collateral to protect against the plunge in prices of the precious metal. Muthoot Finance and Mannapuram Finance’s gold-loan assets under management may dip 1.5%-2% January-March due to the sharp slide of gold prices. India’s market for gold lending will expand by at least 34% to 4.6 trillion rupees ($61 billion) in the two years to March 2022, according to KPMG. The segment’s bad-loan ratio is about 1% compared with 7.5% for the entire banking sector
“While there is a gold price fall and among the normal risk parameters the security would have reduced, the economy is opening up and it is a not crisis situation,” said World Gold Council India Managing Director P R Somasundaram. “People are keen to take loans because every business is coming back and small businesses do depend on gold loans for quick access to capital.”
America Markets
U.S. stocks climbed to a record high on Thursday trade, as increased stimulus in the world’s largest economy fueled optimism about the global recovery
Technology shares led the gains, though value stocks also joined in on the rally
The broad-based S&P 500 scaled 4,000 for the first time and closed up 1.18% at 4,019
The Dow Jones Industrial Average, composed mostly of cyclical stocks, rose 0.52% to 33,153
The tech-heavy Nasdaq Composite Index added 1.76% to settle at 13,480
U.S. equity futures edged higher in early Monday trade. S&P500 futures is up 0.50%; Dow Jones futures is up 0.63% and Nasdaq futures is up 0.22%
10-Yr U.S. Treasury yields, which move inversely to the price, eased to 1.70% in early Monday but remained below a fresh 14-month high of 1.78 hit early last week after the payrolls report showed the U.S. economy added 916K jobs in March, well above expectations and pushing the jobless rate to a 1-Yr low of 6%. Dollar was little changed at 92.95
The Cboe Volatility Index, known as Wall Street’s “fear gauge,” fell -1.07% to 19.40 on Thursday
The U.S. economy added 916,000 jobs in March, more than economists’ forecast of 647,000, and the unemployment rate fell to 6.0% from the previous month’s 6.2%
Treasury yields have spiked on the economic outlook, spurred by U.S. President Joe Biden’s plans for $2.3 trillion in infrastructure spending and the accelerating rollout of Covid-19 vaccines
One near-term market focus is likely to be whether Congress will pass the infrastructure plan Biden formally introduced this week. It includes $2 trillion in spending but also higher corporate taxes that investors fear could undermine profits
More infrastructure spending could fuel shares of companies in the industrials and materials sectors, which have already been among the groups benefiting in recent months from bets on an economic rebound
Biden also plans to raise the U.S. corporate tax rate to 28% from the 21% levy set by the Trump administration’s 2017 tax bill, which had previously been a support for stocks. S&P 500 earnings could take a 7.4% hit from the proposed tax plan, including the higher corporate rate, according to UBS equity strategists
Evidence of strengthening economic and corporate growth could support investor confidence after a quarter that saw solid stock gains but also a worrying surge in bond yields and pockets of market volatility, including the wild ride in GameStop shares and the meltdown of highly leveraged family office Archegos Capital
“Before you worry about inflation, there’s reflation and I think that’s the main theme in the market,” said Ed Campbell, portfolio manager and managing director at QMA.
“The economy’s bouncing back, but it’s not producing the things that are going to change the direction of monetary policy,” Steven Ricchiuto, U.S. chief economist at Mizuho Securities said. “We’re going to test the 1.77% level (in the 10-year Treasury note), but I’m not sure it’s going to break (through) on this number.”
Asia-Pacific Markets
Asian stocks climbed in early Monday trade, as investors weighed an unexpectedly strong U.S. jobs report and the sustainability of the latest selloff in bonds
Japan gained and Korean stocks fluctuated, while markets were closed for the Easter break in China, Hong Kong and Australia
Japan’s Nikkei 225 gained 0.73% to 30,075 and Topix 500 gained 0.34% to 1,538
South Korea’s Kospi fell -0.28% to 3,103
In Hong Kong, Hang Seng and Hang Seng China Enterprises are closed for a holiday
In China, CSI 300 and Shanghai Composite are closed for a holiday
Australia’s S&P/ASX 200 is closed for a holiday
Data over the weekend showed annual profits at China’s industrial firms surged in the first two months of 2021, highlighting a rebound in the country’s manufacturing sector and a broad revival in economic activity
South Korea’s consumer inflation accelerated to a 14-month high in March on higher oil prices and stronger demand for food produces, further signalling a stable recovery path for Asia’s fourth-largest economy
Semi-conductor related shares continued to lead the market as the industry looks set to boost manufacturing amid a global shortage of chips
Automakers were another bright spot, drawing additional help from the yen’s decline in recent weeks
“We are entering a phase where the stock market rallies even as interest rates rise because of strong earnings growth. This stage will eventually lead to an overheated market but we are not there yet,” said Masayuki Kubota, chief strategist at Rakuten Securities.
“The market has bottomed out and investor sentiment and behaviour will tend to be calm in April, though it would take time to foster a continued rally in the market,” CITIC Securities analysts said.
EU Markets
European equities kicked off the new quarter with gains on Thursday trade, as optimism around a new U.S. government spending plan and strong factory activity data out of the euro zone eclipsed concerns about another lockdown in France
The pan-European Stoxx Europe 600 added 0.54% to 427 and Stoxx 50 added 0.68% to 3,946
Germany’s DAX30 added 0.66% to 15,107
London’s blue-chip FTSE 100 added 0.35% to 6,737
France’s CAC40 added 0.59% to 6,103
Despite slow vaccination programmes and a fresh pandemic wave hitting several countries, European markets have recovered almost all of their pandemic-driven losses on strong manufacturing activity and a bounceback in economy-linked stocks such as banks and energy
Data showed euro zone factory activity growth galloped at its fastest pace in the near 24-year history of a leading business survey in March
Chip stocks including those of ASML, ASMI, Infineon Technologies BE Semiconductor all rose between 1.2% and 4% after U.S. chipmaker Micron Technology issued an upbeat revenue forecast
Also boosting the sector, contract chipmaker TSMC said it plans to invest $100 billion over the next three years to increase capacity at its plants
Swiss lender Credit Suisse rose 2.5%, but was on track for its worst week since March 2020, hit by worries about the fallout from Archegos Capital’s dramatic meltdown
France cuts growth forecast as new nationwide lockdown starts. French government previously expected GDP to grow 6% in 2021, but has now cut the country’s 2021 GDP growth forecast to 5%. Closing education establishments and 150,000 stores is essential to slow the spread of the virus, but these measures will have an impact on the French economy
“We remain optimistic on the recovery and believe current vaccine delays in the EU are unlikely to jeopardise the rebound in growth: the supply of vaccines is set to improve significantly in 2Q/3Q,” analysts at Equita said.
Oil & Natural Gas Markets
Crude-oil prices held back in early Monday trade, as OPEC+ agreed to boost their collective production by more than 2-million barrels a day over coming months, betting on resurgent demand as they and the rest of the world assess the economic consequences of the pandemic’s trajectory
OPEC+ agreed to boost output in May by 350,000 barrels a day, and by the same amount again in June, according to delegates. They agreed to then increase output by another 450,000 barrels a day in July
WTI Crude is trading at $61.21 per barrel
Brent Crude, the international benchmark for oil, is trading at $64.56 per barrel
Natural Gas futures slipped to $2.639/MMBtu
Commodities Markets
Gold futures gained upside momentum in early Monday trade
Forecasts of a rapid global economic expansion this year, powered by vaccinations and U.S. stimulus, have tarnished gold’s allure as a haven in uncertain times
Gold unlikely to rise above $1,700 – $1,750 range in the near-term, until growth and inflation likely stalls with investors favoring assets and commodities that track higher inflation
U.S. Gold futures (Comex) is trading at $1,728 an ounce
Silver futures (Comex) is trading at $25.00 an ounce
Gold / Silver Ratio rose marginally to $69.08
Copper futures (Comex) rose to $4.0550 per pound
SGX Iron-Ore futures fell to $163.00 per tonne
In India, Spot Gold is trading at INR 45,479 per 10 grams
“What we got wrong is the underlying economic growth environment is far stronger,” said Jeffrey Currie, head of commodities research at Goldman Sachs. Investors have switched out of gold and into markets that stand to prosper from the lifting of lockdowns, such as industrial metals.”
Currency Markets
U.S. dollar index, DXY eased to 92.95 in early Monday trade, after edging higher following a surge in the hiring of Americans in March pointed to a U.S. economic recovery that is poised to be the strongest in decades
The dollar’s ascent to multi-month highs is likely to continue as more investors bet on economic recovery
INR strengthened with USD / INR at 73.3700
JPY weakened with USD / JPY at 110.6900
EUR weakened with EUR / USD at 1.1759
GBP strengthened with EUR / GBP at 0.8505
GBP weakened with GBP / USD at 1.3832
“The overall strength of the labor market is likely to prove dollar-positive,” said Joe Manimbo, senior market analyst, Western Union Business Solutions. “The hiring explosion showed the economy producing some of the ‘substantial further progress’ the Federal Reserves wants to see before it pivots away from its low rate policies. Treasury yields may take exception given tepid wage growth which is consistent with inflation remaining subdued.”
| 3-Month LIBOR Rate | As on 02 Apr 2021 |
| US DOLLAR | 0.19 per cent |
| Euro | – 0.55 per cent |
| British Pound | 0.09 per cent |
| Swiss Franc | – 0.75 per cent |
| Japanese Yen | – 0.07 per cent |
Bitcoin
Bitcoin / U.S. Dollar dropped -0.55% in early Monday trade to $57,892 as of 07:00 a.m. I.S.T.
The recent pullback in Bitcoin’s volatility is setting the stage for a trend that could encourage institutions to dive in, according to JPMorgan Chase. The coin’s volatility has kept institutions away, which is a key consideration for risk management – the higher the volatility of an asset, the higher the risk capital consumed by it
Goldman Sachs is close to offering investment vehicles for Bitcoin and other digital assets to private wealth clients. Morgan Stanley plans to give rich clients access to three funds that will enable ownership of crypto and BNY Mellon is developing a platform for traditional and digital assets
Rally in Bitcoin over the past two quarters has come at the expense of gold, JPMorgan’s strategists said, citing $7 billion of inflows into Bitcoin funds and $20 billion of outflows from ETFs tracking the precious metal
“These tentative signs of Bitcoin volatility normalization are encouraging,” strategists including Nikolaos Panigirtzoglou said. “In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward.”
Bond Markets
Americas : 10 – Year Govt Bond Yields
United States : 1.70%
Canada : 1.51%
Europe, Middle East & Africa : 10 – Year Govt Bond Yields
Germany : -0.33%
United Kingdom : 0.79%
France : -0.08%
Italy : 0.63%
Netherlands : -0.20%
Asia Pacific : 10 – Year Govt Bond Yields
India : 6.17%
Japan : 0.11%
Australia : 1.83%
Hong Kong : 1.19%
Singapore : 1.69%
South Korea : 2.06%
Fund Flows on NSE, BSE and MSEI — 01 Apr 2021
FII/FPI Net Buy Rs 149.41 Crore in Capital Market
DII Net Sell Rs (296.84) Crore in Capital Market
Where We’ve Been Reading —
- Bloomberg
- The Wall Street Journal
- Reuters
- Trading Economics
- Seeking Alpha
- Axios
- Tech Crunch
- NSE Indices India
- Morningstar India
- The Star
- Harvard Business Review
- The Economic Times
