Gold keeps on shining amid rising yields and the Trump trade

* Dollar supported by higher Treasury yields and euro and yen weakness

* Gold rises to yet another record as its rally continues

* Equities close mixed as traders weigh corporate earnings

* Bank of Canada expected to cut by 50bps and continue cuts to end-2025

FX: USD hit fresh two and half month highs as yields moved north again. The widely followed 10-year Treasury pushed above its 200-day SMA at 4.19%. The dollar has risen for three straight weeks for its 15^th gain in 17 sessions. Positive data surprises, as we mentioned yesterday, plus less dovish Fed comments are buoying the greenback. Expectation of a Trump win in two weeks’ time are also continuing to help. His policies are seen as more inflationary which would support the buck.    

EUR is breaking down with sellers forcing the major through the 1.08 level. President Lagarde said inflation in the region is on the way down and could fall back to 2% more quickly than once thought. The next support level is 1.0732, a minor retracement Fib level of the April uptrend.

GBP broke down to fresh cycle lows and below the 100-day SMA at 1.2961 before paring losses. Cumulative UK government borrowing over the fiscal half year was above forecasts which may limit the Labour government’s room for manoeuvre in next week’s budget.

USD/JPY is sitting above the 100-day at 150.66, just below the 200-day SMA at 151.34. The Japan general election is looming with the ruling coalition losing support. Any weakening of PM Ishiba’s position might lead to a further delay in policy normalisation at the BoJ. That could raise speculation for at least verbal intervention by the MoF if speculators continue to push the major higher. 151.94 is a key psychological level.

AUD benefitted from a sharp rise in local bond yields, while gains for Chinese stocks also helped push the aussie and kiwi higher. CAD held steady after the recent battering. The BoC meeting is today, and the will they or won’t they cut by 50bps question will be answered.

US Stocks were mixed and again proved choppy. The S&P 500 closed 0.05% lower to settle at 5,851. The tech-heavy Nasdaq 100 added 0.11% to finish at 20,384. The Dow settled off 0.02% at 42,295. Earnings drove some decent moves with GM up strongly and Verizon off. Sectors were mixed with Industrials and Materials the laggards, with the former weighed on by disappointing GE (-9%) and Lockheed Martin (-6%). We note that exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past, according to the investment bank, Citigroup. Long positions on futures linked to the benchmark index are at the highest since mid-2023 and are looking “particularly extended”. Rising bond yields might also cause some concern, given how expensive the market is currently.

Asian stocks: Futures are in the red. Asian stocks traded mixed amid a lack of big catalysts and higher yields. The ASX 200 pulled back with healthcare and real estate leading the losses. The Nikkei 225 struggled after not holding the 39,000 level. The Hang Seng and Shanghai Composite traded in the green after initial selling.

Gold jumped to fresh highs, adding over 1%. That’s now gains of 40% this year. The dollar and yields were only mildly bid yesterday. Debt sustainability is being touted as a major reason for this incessant buying, as Trump 2.0 looks at the moment like the next US President. Tax cuts and tariffs means rising inflation, which will offset a rising dollar, is the thinking. Some commentators are going further by asking if this is the start of the erosion of the dollar’s dominant role?

Day Ahead – Incoming Bank of Canada 50bps cut?

A 50bps rate cut is around 75% priced in by markets, which would be the first move greater than 25bps since the central bank’s easing campaign began in June. Bets piled in on a bigger reduction after the recent headline inflation data missed expectations due to a drop in gasoline prices. Consumer prices have consistently eased since the start of the year, touching the mid-point of the 1%-3% target range.

The loonie has suffered recently with widening US/Canada interest rate spreads as markets reprice near-term Fed risks and predict a jumbo-sized move by the BoC. Lower energy and non-energy commodities have also kicked CAD down. Policymakers may be wary of going too fast too soon, which would boost the housing sector. The US election uncertainty and a weak CAD might also mean a more modest rate reduction. A smaller cut or less dovish talk could boost CAD and cause a USD/CAD fall towards near-term support at 1.3745. But a dovish bias may challenge the recent top at 1.3849.

Chart of the Day – TSLA on the edge

Tesla reports earnings after the US closing bell today. The stock price has severely underperformed this year, down around 13% vs the S&P500 posting gains of 22%. TSLA will get a lift if it can beat analyst estimates, as it has fallen short of these for four straight quarters. Sales guidance around its Cybertruck will be important, potentially building on its fast-selling start. A boost from any China recovery should also bode well, as EV sales grew for the first time in months in the last quarter. The Elon Musk owned company dropped over 12% after it unveiled its long-awaited robotaxi. Tesla didn’t provide details on how fast it could ramp up production or deal with potential regulatory hurdles. #

Prices have tracked sideways for multiple sessions which means we should see range expansion. Key levels of support are $205 on the downside and resistance at $240 above. For your guide, options imply a +/-6% move on the day. This would be the lowest percentage change in the share price on the day of earnings since the first quarter 2022 results.

AUTHOR

Jamie Dutta >

Jamie Dutta is a Market Analyst for Vantage. He comes with extensive experience as a full-time trader and financial market commentator, having worked as a trader in top tier investment banks and trading houses.