Gold Nears 7-Week High

Daily Analysis - 02/08/2017

Downbeat US Economic Data Boosts Bullion

Gold futures gained on Tuesday to post their highest settlement in almost two months as lacklustre US economic data decreased the likelihood of the Federal Reserve following through with another interest rate hike this year. However, a bout of profit-booking saw bullion prices retreat in early Wednesday trade.

Precious Metals Investors Await Fresh Clues

A leading gauge of US manufacturing activity fell from a near three-year high in July amidst tepid new orders, while consumer spending remained largely unchanged in the prior month. Apart from implying economic expansion remained moderate during the third quarter, it further decreased the odds of a Fed rate increase. According to the Chicago Mercantile Exchange’s FedWatch tool, the probability of another quarter-point rate rise before year end has been slashed to around 42.50%, compared with a 50.60% likelihood, a month ago.

Gold is typically inversely related to US interest rates as higher rates dull the appeal of the non-yielding metal in favour of interest-bearing assets. XAUUSD was last seen around the $1266 per ounce-mark, with strong overhead resistance at $1275. Bullion is likely to remain range bound until Friday's all-important US jobs report.

UK Manufacturing Gathers Momentum

Growth in UK manufacturing activity accelerated in July, buoyed by the strongest surge in export orders since 2010. The Markit UK Manufacturing PMI rose to 55.1 last month from a downwardly revised 54.2 in June beating the consensus estimate anticipating a PMI reading of 54.4. A figure above 50.0 suggests expansion, while any figure below indicates contraction.

The July survey was the twelfth consecutive monthly reading that pointed to ongoing expansion in the sector. The headline measure comes as policymakers at Bank of England meet ahead of their latest interest rate announcement on Thursday, with a majority of market participants expecting the Central Bank to keep rates at a record low. Following the release of the robust PMI data, sterling rallied its highest level in 10-months against the US dollar. The GBPUSD pair is currently edging higher, firmly above the 1.3200-mark.

Apple Earnings Drive Strong Share Performance

Apple delivered strong fiscal third quarter results and signalled its upcoming 10th-anniversary iPhone was on schedule, lifting shares 6.30% in after-hours trading on Tuesday. The tech giant reported adjusted earnings of $1.67 per share, easily topping the consensus Wall Street estimate of $1.57 per share. Revenue came in at $45.40 billion versus the average analysts’ estimate of $44.89 billion.

Third quarter iPhone sales increased 1.60% to 41.03 million, above estimates of 40.70 million units for the period. Apple is widely tipped to include higher-resolution OLED screens in its latest iPhone, slated for release in September. The company forecast total sales of between $49.00 billion and $52.00 billion for the fourth quarter. Apple's fourth quarter numbers generally include first-weekend sales of its latest devices. After ending Tuesday cash equity session at $149.95, shares surged to $159.50 following the earnings announcement.

New Zealand Unemployment at Lowest Since 2008

Data from Statistics New Zealand released overnight showed that the unemployment rate for the country slipped to 4.80% in the second quarter from 4.90% three months earlier, reaching its lowest point since December 2008. However, despite the headline optimism, the number of jobs created surprisingly declined by -0.20%. Economists surveyed by Reuters had forecast the jobless rate to come in at 4.80%, while quarterly job creation was projected to rise by 0.70%.

The unexpected dip in jobs growth combined with sluggish wage inflation indicates that the Reserve Bank of New Zealand will most likely keep interest rates on hold at record lows when its monetary policy committee meets next week. The NZDUSD pair is tumbling in Wednesday morning trade to currently hover just above strong support at 0.7400.