Gold is getting hammered as the dollar soars,

Global Stock Markets

Gold is losing its luster and and it could plunge another 7% from here.

The metal has fallen 5 percent in the last three months as the U.S. dollar has gained ground, in turn depressing gold prices.

The commodity hit a fresh 2018 low Wednesday.Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, told CNBC's "Trading Nation" that the bottom is nowhere near in for gold.

Here are his reasons why.

Gold has fallen as U.S. interest rates and the U.S. dollar have risen meaningfully in recent months. The metal is typically a story about yield; rising interest rates tend to make gold (a nonyielding, dollar-denominated asset) less attractive.

The benchmark 10-year yield's breach of the 3 percent level for the first time in four years fueled this move.

Gold is usually more so a hedge or a speculative instrument, rather than an investment.

At this point, if investors see bond yields rallying further, toward 3.25 percent, gold will likely continue its descent.

The only thing to support gold here would be some kind of geopolitical event, which could spur investors flocking to gold.

Without that kind of catalyst, gold is likely to see a move down to $1,200 per ounce, or 7 percent below current levels.

Stronger dollar traps gold near five-week lows

Global Stock Markets

Gold prices hovered near five-week lows on Thursday as higher U.S. bond yields and a stronger dollar dampened interest in bullion.

Worries about growing supply of U.S. government debt and inflationary pressures from rising oil prices have pushed U.S. 10-year bond yields above 3 percent for the first time in four years.

That, in turn, has helped to thrust the dollar to its strongest since January, making bullion more expensive for users of other currencies. Higher bond yields, meanwhile, also reduce the attraction of non-yielding gold.

Spot gold was up 0.1 percent at $1,324.95 an ounce at 1156 GMT after on Wednesday, having touched its lowest since March 21 at $1,318.51.

U.S. gold futures were up 0.3 percent at $1,326.30 an ounce.

Interest from physical buyers and technical support at gold's 100-day moving average of $1,319.55 helped to prevent further falls.

Gold has been stuck in a trading range between about $1,360 and $1,310 since hitting a 1-1/2 year high of $1,366.07 in January.

It has been supported by geopolitical uncertainty, which has fuelled demand for gold as a safe haven, but has been prevented from moving higher by fears of rising U.S. interest rates that would push up bond yields and strengthen the dollar. 

U.S. GDP and inflation data on Friday could give new direction to prices, said Mitsubishi analyst Jonathan Butler.

Stronger than expected economic growth or inflation would hurt gold by bolstering expectations of more rapid increases to interest rates.

Investors are also watching the European Central Bank on Thursday for clues on when it will signal an end-date for its 2.55 trillion euro ($3.2 trillion) asset-buying programme.

In other precious metals, silver was up 0.4 percent at $16.59 an ounce after falling more than 1 percent on Wednesday.

Platinum rose 0.6 percent to $911 and palladium was down 0.5 percent at $972.90.

US Stock Index futures points to a strong open with tech-heavy shares

Global Stock Markets

U.S. stock index futures pointed to a strong open for the tech-heavy Nasdaq on Thursday as a slew of upbeat earnings from Facebook and Qualcomm helped set aside worries over rising U.S. bond yields and corporate costs. 

The Nasdaq Composite index .IXIC was set to open 60 points higher and break its five-day losing streak, its longest since November 2016.

Facebook jumped 6.84 percent in premarket trading after the social networking company reported a 63 percent surge in first-quarter profit and a rise in users, with no sign that business was hurt by a scandal over the mishandling of personal data, which unfolded in mid-March.

Shares of other internet stocks Twitter (TWTR.N) and Snap (SNAP.N), which came under the shadow of the Facebook scandal, were also higher.

Advanced Micro Devices (AMD.O) and Qualcomm (QCOM.O) were up 8.9 percent and about 1 percent after both the chipmakers posted quarterly results that beat Wall Street estimates, easing concerns about weak demand for smartphones after some Asian peers warned of slower growth.

Despite strong results from most U.S. firms that have reported so far, investors have been reacting to signs that rising inflation could take a toll on corporate profits.

The 10-year U.S. Treasury yield US10YT=RR, the benchmark of global borrowing costs, crossed the 3 percent level on Tuesday for the first time in four years. [US/]

Increasing federal borrowing, together with inflation concerns due to rising commodity prices and bets on further rate increases from the Federal Reserve, sparked a sell-off in bonds.

At 7:11 a.m. ET, Dow e-minis 1YMc1 were up 40 points, or 0.17 percent. S&P 500 e-minis ESc1 were up 6.25 points, or 0.24 percent and Nasdaq 100 e-minis NQc1 were up 41 points, or 0.63 percent.

Of the 154 S&P 500 companies that reported first-quarter earnings as of Wednesday, 81.2 percent topped profit estimates. Analysts now expect earnings growth of 22 percent, according to Thomson Reuters data.

Shares of the No. 2 U.S. automaker Ford (F.N) jumped 1.5 percent after it outlined a plan to cut costs and boost profit margins at a faster pace than previously announced.

General Motors (GM.N) fell about 2 percent after the company reported a lower quarterly profit as it began the changeover to a redesigned family of high-margin pickup trucks that resulted in lower production.

Some of the companies reporting after the market close include Amazon (AMZN.O), Microsoft (MSFT.O) and Intel (INTC.O).

Update on Currency

FM Wealth Management News Letter

When we look at the last six months, currency traders have had to re-adjust to the dollar (UUP) diverging from rate differentials. In simpler terms, the dollar and yields (TLT) are moving in different directions.

Originally it was dismissed as temporary, but by looking at the EUR/USD chart since September (that is when the second leg of the yield rally was in full swing) tells us it isn’t going away any time soon.
If this isn’t enough to convince you, we are also including the USDJPY divergence.

It’s a Trilemma
A concept introduced by ING, the “Trump Trilemma” is in a note released the 15th February. They state,
“The conflicting market narratives of the Trump administration’s ‘America First’ economic policy agenda underscore the “Trump Trilemma” – which stipulates that out of three potential market dynamics, only two can co-exist at any one time. The three dynamics are as follows:

(1) rising bond yields (a function of greater government borrowing / rising supply of US Treasuries to fund fiscal spending)
(2) a weaker US dollar (to address US trade / external imbalances)
(3) confidence in the long-run US economy (at least relative to the rest of the world)”

Right now we can clearly see points 1 rising bond yields and 2 a weaker US dollar, which means there cannot also be point 3 a lack of long term confidence in the US economy. This may seem strange given the economy is apparently strengthening and US equities are at near all-time highs. ING explains this by:

“the heightened focus once again on the US economy’s ‘twin deficits’ – which has only been exacerbated by (1) the GOP’s debt-financed tax cuts and (2) the relative cyclical strength in other parts of the global economy.”

This was a point also made in a Unicredit note released in February. Where they describe how massive foreign inflows into the US since the financial crisis of 2008 are set to stop and potentially reverse.  According to Unicredit:

“This is likely because US policy responses to the crisis were relatively timely, growth picked up considerably faster than in the rest of the world, while for most part of the last decade the euro area has been mired in disintegration risks and China has been in the process of rebalancing towards slower (albeit more-sustainable) growth. In effect, for many years US assets provided a very attractive risk-reward ratio and contributed to US investors’ increasing home bias.

But over the last couple of years, things have moved on, and on several dimensions: the eurozone has seen two consecutive years of growth higher than that in the US, EMU political risk premiums have dissipated, US assets have started looking very expensive and now the US administration is in the midst of pursuing unprecedentedly loose fiscal policy that will make the economy extremely vulnerable once the next cyclical downturn hits (and with the US business cycle being so mature, odds are that the next slowdown is approaching).”

Going back to the “trilemma”, yields and the dollar could therefore rise in tandem if the situation above changed. In other words if there was confidence in the long-run US economy (at least relative to the rest of the world) coupled with rising bond yields, then we would have to rule out point 2 a weaker US dollar.

So the next question becomes, “what has to change in order to boost confidence in the long term US economy?” Unfortunately this is where ING answers,  ”we’re scratching our heads at finding any new positive US demand or supply shocks that could change the landscape for an economy in the 10th year of its expansion cycle.”

Both Unicredit and ING see the dollar continuing a downtrend for some time, could be even years.
On the other hand we could have a significant correction in US assets to make them attractive again. So if we look at the crash of 1987 which led to a positive correlation between the dollar, the S&P 500 (SPY) and yields after they moved in opposing directions for many years in a situation which is not unlike the one we find ourselves in.

We are not stating that this going to happen now, we just want to point out that it is a possibility.

Your Takeaway

The divergence in the dollar and rate differentials is continuing and many investors and analysts are wondering at when or what will make it end. We can tell you that the answer does not rest with the with the next inflation figures or  the Federal Reserve, but squarely on the “Trump Trilemma” and long term confidence in the US economy compared to the rest of the world. Until this changes, we should be wary of any strength in the dollar as it is likely only temporary.

Global stocks stay subdued as dollar edges higher

Global Stock Markets

 A stronger dollar and slightly higher global borrowing costs kept world shares subdued on Friday and left gold limping toward its worst week since December.
 

Europe’s main London, Frankfurt and Paris markets barely budged in early moves, keeping MSCI’s 47- country world index just in the black on the day but facing its third red week in the last four.

Modest gains for the dollar meant the euro was set to post its second biggest weekly loss in nearly four months [/FRX], as caution over the Italian election gave bond markets there their toughest week of 2018.

Polls point to a hung parliament in Italy, where no one party or coalition has an outright majority to form a government, and analysts expect a short-term volatility that could weigh on traditionally sensitive euro zone markets.

Italy’s 10-year bond yield was up 1 bps at 2.09 percent. It has risen about 10 basis points this week.

He noted comments from European Commission President Jean-Claude Juncker this week, who was reported to have warned about Italian election risks.

Broader global cross-asset issues remained much the same as they have during a choppy few weeks. How far and fast U.S. interest rates can rise and what would it mean for global borrowing costs, risk appetite and business confidence.

That caution is reverberating in the bond markets with U.S. yields rising by more than 50 basis points since early December, more than the 38 basis points for German government debt.

Benchmark Treasury 10-year note yields rose to a four-year high of 2.957 percent on Wednesday though they were a shade down at 2.904 percent on Friday.

The backsliding also stalled the dollar’s overnight gains in Asia. It was virtually treading water against most major currencies by 0930 GMT, buying 106.8 yen and at $1.2325 and $1.3965 against the euro and pound.

It was still up more than 1 percent for the week and headed for its third gain in the last four weeks.

“We think the Fed could well put U.S. (interest) rates up four times this year but even then it only takes U.S. rates to 2.5 by the end of the year,” said JPMorgan Asset Management global strategist Mike Bell. “So the question is would they continue at that pace in 2019?”

One of the Fed’s chief doves, St Louis Fed President James Bullard, tried to tamp down expectations of four rate hikes on Thursday, saying policymakers needed to be careful not to slow the economy.

Fed points upwards for rates, world stocks lurch downward

Global Stock Markets

World stocks tumbled to one-week lows on Thursday after the U.S. Fed confirmed it was on track to raise interest rates several times this year, sending bond yields to new multi-year highs. 

 

While U.S. 10-year yields retreated after nearing the psychologically key 3 percent level, the minutes of the U.S. Federal Reserve’s meeting at the end of January has at least temporarily taken the edge off investors’ appetite for equities and other assets perceived as risky, such as emerging markets and commodities.

The dollar too was trading just off 10-day highs against a basket of currencies .DXY and was set for its first week of gains this year.

Three rate rises are now almost fully priced in for 2018, compared with two as recently as December, and some traders are even contemplating the possibility of four rate rises in 2018.

Despite all the solid earnings reports, Wall Street saw steep losses on Wednesday after the Fed minutes, and Asian and European markets lost ground too, falling around 1 percent .MIAPJ0000PUS .N225 .

The latter failed to even benefit from robust earnings updates from a series of firms ranging from 

British bank Barclays (BARC.L) to French utility Veolia (VIE.PA). 

MSCI’s all-country equity index .MIWD00000PUS fell 0.4 percent for its third straight day of losses while emerging equities lost 1 percent .MSCIEF.

New York was set for another weak session, futures suggested, with S&P futures down around 0.3 percent ESc1. 

Analysts noted that the January Fed meeting had happened after lawmakers approved a $1.5 trillion package of tax cuts, potentially adding more fuel to an economy which has already picked up steam. 

The 3 percent level on 10-year U.S. yields is seen as a huge psychological milestone for bulls and bears alike. 

In the meantime though the yield, which hit four-year highs around 2.96 percent after the minutes, retreated to 2.92 percent US10YT=RR. Two-year yields touched new nine-year peaks. 

That weighed on euro zone yields, with the German 10-year benchmark DE10YT=RR down one basis point. Yields were also dampened by data showing German business confidence fell more than expected in February, though Europe’s biggest economy is clearly set for solid growth. 

The next hurdle for markets will be minutes from the European Central Bank’s last meeting at 1230 GMT, with investors keen to see if there was more talk of an eventual unwinding of stimulus. 

The “transatlantic spread” between German and U.S. 10-year borrowing costs widened to near a year high at 220 bps, reflecting the diverging monetary policy expectations between the two countries.

Britain however confirmed itself as one of the weak spots in the world economy, with data showing below-forecast 0.4 percent growth in the last quarter of 2017. That pushed sterling 0.2 percent lower against the dollar GBP=, a one-week low. 

The firmer dollar pummeled commodities too - Brent crude futures were down 0.4 percent COc1 while gold and copper prices also fell CMCU3 XAU=.

US Markets : Top 5 Things to Know today

Global Stock Markets

Top 5 Things to Know in the Market today

1. Global Stocks Slump Amid Fed-Driven Jitters

Global stocks were on the backfoot, after minutes of the Federal Reserve's January meeting underlined expectations for faster U.S. interest rate hikes, souring appetite for riskier assets around the world.

Asian markets ended broadly lower, with Hong Kong's Hang Seng and Japan's Nikkei 225 faring the worst, closing down around 1.5% and 1.1% respectively.

But Chinese markets were in a better mood, returning from their long holiday break with a gain of about 2.2% for the Shanghai blue-chip index.

In Europe, stocks were notably weaker in mid-morning trade. The Stoxx Europe 600 index, the region's broadest measure of share prices, fell 0.9%, with all sectors and major bourses in negative territory.

Meanwhile, early indications from U.S. futures suggest another day in the red for Wall Street. Dow futures were down nearly 100 points, or around 0.4%, while S&P 500 futures fell 5 points, or about 0.2%. Nasdaq 100 futures lost 30 points, or roughly 0.4%.

U.S. stocks ended a tumultuous session firmly lower on Wednesday, with the Dow erasing gains of nearly 300 points following the release of the hawkish Fed minutes.

2. Dollar, Treasury Yields Stand Tall Thanks To Hawkish Fed View

The U.S. dollar rose to a one-and-a-half-week high against a basket of major currencies, boosted by speculation the Fed will raise interest rates at a faster pace than currently expected.

The dollar index, which gauges the U.S. currency against a basket of six major rivals, reached its best level since Feb. 12 at 90.17 in overnight trade. It was last at 90.05, well above a three-year low of 88.15 touched last week.

Meanwhile, yields on the 10-year bond were last trading at 2.925%. They rose to a four-year peak of 2.957% a day earlier, creeping ever closer to 3% - a huge psychological milestone for bulls and bears alike.


3. Oil Under Pressure Ahead of EIA Weekly Supply Report

The U.S. Energy Information Administration will release its weekly report on oil supplies, which comes out one day later than usual due to Monday's Presidents' Day holiday, at 11:00AM ET (1600GMT), amid analyst expectations for a gain of nearly 1.8 million barrels.

The American Petroleum Institute said late Wednesday that U.S. oil inventories fell by 0.9 million barrels last week. There are often sharp divergences between the API estimates and the official figures from EIA.

Oil prices were under pressure, with WTI crude futures dropping 1% to $61.11 per barrel, while Brent crude futures were at $64.91 per barrel, down 0.8%.

4. Bitcoin Slides Back Towards $10,000-Level

The prices of major cryptocurrencies continued lower for the second day in a row, with Bitcoin, Ethereum and Ripple all suffering significant declines, as overall market sentiment waned.

The price of the world's biggest virtual currency by market cap, Bitcoin lost around 4% to $10,521, after hitting an overnight low of $10,200. After nearly doubling in price since the Feb. 6 low close to $6,000, traders have begun dumping some of their holdings, market participants said.

The news was no better for other major digital currencies, with Ethereum, the world’s second largest cryptocurrency by market cap, falling around 5% to a one-week low of $842.20.

The third largest cryptocurrency Ripple slumped around 4% to trade at $0.96571. It has declined more than 60% so far this year, making it one of the worst performing digital currencies of 2018.

5. UK Economic Growth Revised Lower

Britain's economy grew more slowly than first thought during the three months to December, official figures showed, raising questions about the economy's strength as the Bank of England prepares to raise interest rates.

Gross domestic product grew by 0.4% between October and December, the Office for National Statistics said, below economists' forecasts and a preliminary estimate of 0.5%. In year on year terms, downwardly revised growth of 1.4% was the weakest in more than five years.

The pound lost ground against the dollar, with GBP/USD falling to a one-week low of 1.3880.

FTSE: Earnings and ex-divs blight

European Stock Markets

Disappointing results, big stocks going ex-dividend and concerns over rising bond yields hit Britain’s top share index on Thursday, pulling it to a one-week low.

Britain's blue chip FTSE 100 .FTSE index had declined 1 percent to 7,210.67 points by 1001 GMT, while mid caps .FTMC fell 0.7 percent.

A number of heavyweight stocks dropped after reporting results. Shares in British American Tobacco (BATS.L) were the biggest fallers, down 4.5 percent after the cigarette maker reported weaker-than-expected sales growth for 2017.

Likewise miner Anglo American (AAL.L) fell 4 percent following its full year update. Though the miner reported a 45 percent increase in annual earnings and halved its net debt, analysts pointed to the fact that Anglo’s shares had gained 16 percent in 2018 ahead of the announcement, on top of last year’s 33.6 percent rally.

Elsewhere mid cap Moneysupermarket.com (MONY.L) plummeted more than 16 percent after its guidance disappointed investors, with the firm pointing to costs around a new strategy.

Stocks trading ex-dividend also weighed, with Imperial Brands (IMB.L), Diageo (DGE.L) and GlaxoSmithKline (GSK.L) all falling.

More broadly, concerns over rising bond yields and inflation continued to plague equity markets, after the minutes from the U.S. Federal Reserve’s latest meeting showed more confidence in the need to keep raising interest rates.

This in turn sent the benchmark 10-year U.S. Treasury yield to a four-year high and the dollar also gained, which in turn hit greenback-denominated metals prices.

Consumer staples, which are considered by some to be proxies for bonds given their generous dividend income streams, took the most points off the FTSE, given that rising bond yields dents their appeal for some investors.

Materials stocks also dropped, tracking commodities prices lower.

Analysts cheered Barclays restoring its full dividend, which demonstrates that the bank is confident in future earnings.

Likewise utility Centrica (CNA.L) bounced 4 percent after its full year results, in which it raised its cost savings and announced that it would cut 4,000 jobs by 2020.