Gold Climbs As Dollar Risk Assets Slide on Growth Worries

Despite a slew of economic data, gold prices remain unable to break above $1,210 strong resistance. Analysts expect the Fed to gradually raise interest rates this week, following the fall in the U.S. unemployment rate to its lowest level in 49 years. Rising rates raise the opportunity cost of holding non-yielding assets, including gold. Traders are selling gold to take advantage of rising interest rates.

Investors on three continents dumped stocks on Monday

Stocks fell on Monday as investors from three continents dumped their holdings. Many investors were alarmed at recent reports that China and the United States are taking steps to undermine the nascent global economic recovery. While these events could have a variety of ramifications, it’s hard to say. Nonetheless, investors are now selling stocks across the board. Here’s a closer look at the reasons that prompted investors to dump their holdings:

Evergrande – The Chinese real estate developer – is on the hook for interest payments that could reach $80 million. It missed two payments from its largest bank creditors last week. That’s why the Evergrande stock plummeted nearly 10% on Monday. And this is just one example of a company that’s suffering from the “spillover effect,” which occurs when an event in one country impacts the economy of another. If Evergrande defaults on its payments, it would lead to a technical default by its creditors and result in a wholesale write-down of $305 billion of debt.

US Federal Reserve to hike borrowing costs by half a point

US Fed’s new policy aims to squelch soaring inflation by increasing interest rates. The new rate hike will increase borrowing costs, cool down consumer and business activity, and dampen the growth in the U.S. economy. It is an attempt to engineer a “soft landing.”

The decision comes on the heels of the Fed’s decision to increase interest rates by a quarter-point this March. After keeping rates near zero for years due to a pandemic, the Fed decided to boost borrowing costs by half-a-point this week. Policymakers said that more rate hikes are in store in the months ahead. They also announced plans to shrink their nearly $9 trillion balance sheet by up to $95 billion per month.

Powell also said that further increases in the key interest rate should be on the table at the next few Fed board meetings. While he did not rule out the possibility of raising rates by three-quarters of a point, he tried to play down speculation that a hike of that magnitude would be a possibility. While this may not seem like a lot, it does appear that the Fed is moving in a neutral direction. Moreover, it has warned that the risk of inflation being too high is not worth the increase in borrowing costs.

The Fed’s goal is to tame inflation without stopping growth. But an increasing number of economists fear that the Fed will not be able to contain price increases. A steep rise in borrowing costs can drag the economy into a recession or increase unemployment. But Powell insists that the U.S. economy is resilient enough to handle the increase in borrowing costs. And he is right to do so.

Bitcoin tumbles below $30 000 for first time since July 2021

Gold is surging as dollar risk assets fall on growth concerns, while bitcoin plunges below $30 000 for the first time in seven years. Bitcoin has lost more than 50% of its value since its high in late November, and investors are increasingly selling the volatile asset in favor of safer assets. The recent collapse of bitcoin is consistent with the exodus from highly speculative assets, including cryptocurrencies and SPACs.

Analysts at Meeschaert Financial Services said the recent decline in bitcoin was not a major news event, as stocks had been under pressure all week, while rising inflation concerns have further deepened expectations for aggressive action by the Federal Reserve. Still, some analysts cited the easing of trade tensions with Russia as a positive factor for the markets.

The recent collapse in bitcoin prices has rattled institutional investors, who lost money on the asset last year. While Bitcoin does have solid long-term fundamentals, the environment for cryptos is a bearish one due to growth fears and possible recession. The collapse of Bitcoin is accompanied by dives in US equities. On Monday, the S&P 500 declined 3.2 percent and the Dow Jones gained 2.0 percent.

After a week of volatility, the euro returned to $1.0395, its lowest level since late February, and the euro rose a touch. Meanwhile, European natural gas prices remained below $30 000, as reduced geopolitical risks eased concerns over energy supplies to Europe. Meanwhile, West Texas Intermediate crude fell but held near $95 per barrel.

Oil prices edge up as European Union chiefs discuss embargo on Russian oil shipments

The rout in the oil markets may be over, but OPEC chiefs say such a move could have devastating effects on the market. A Russian embargo would disrupt a vital flow of raw materials. The country is the world’s largest exporter of natural gas and oil. It also supplies about a tenth of the world’s copper and aluminum. In addition, Russia is the largest exporter of wheat. If this situation escalates, the flow of vital raw materials to Europe may be affected. If the embargo goes through, it could even force Russia to stop some of its exports.

The EU’s embargo on Russian oil shipments is part of a six-part package of sanctions against Russia over the Ukraine conflict. It is the most significant punishment since the start of the war. It threatens to further destabilise the European economy. EU countries are Russia’s top clients, purchasing more than three million barrels a day of crude oil and refined products from the country. Last year, EU nations spent EUR73 billion on Russian oil.

The European Commission is proposing a phase-out of Russian oil shipments. If adopted, this ban would come into effect after six months, after which countries would be unable to buy Russian oil or refined petroleum products. A 20-month embargo on Russian oil shipments is more feasible if the European Union is willing to work with member states to find new suppliers. In the meantime, other oil-producing countries such as Iran and Venezuela are expected to fill in the void.

China’s yuan extends losses to near 19-month low

The tightly controlled currency’s weakening trend is extending this week, with the yuan depreciating 10.8% against the dollar, the biggest weekly loss since June 2018. Its offshore counterpart has fallen to 6.5265 per dollar, which puts it on track for its worst performance since August 2015. The disruptions and COVID lockdowns in Shanghai and Beijing have shifted the macroeconomic outlook in China. While some stakeholders have been “quite happy” with the yuan’s weakening trend, others have been predicting a larger yuan depreciation.

Onshore yuan fell 500 basis points to 6.72 per dollar in intraday trading, its lowest level since November 2020. The PBOC has attempted to limit the damage by cutting the requirement of foreign exchange reserves for banks to 8% from the previous 9%. This policy did help stem the yuan’s decline for a few days, but it was soon back to its previous levels.

Offshore yuan held below 6.8 per dollar during the day. The currency has hit its weakest level since November 2020. The yuan was trading near 6.70 per dollar at midday, four-and-a-half percent weaker than it closed on Friday. The weak Chinese data were mostly impacted by the ongoing COVID lockdown in Shanghai, while a rise in domestic pork output curbed appetite for imported products. The yuan is likely to remain under pressure for the foreseeable future, as the Federal Reserve is expected to tighten policy more rapidly than anticipated.

China’s tech stocks sell off as currency scales 2021

Growing concerns over China’s economy have pushed the dollar to a two-year low and sent global risk assets soaring. The Chinese government has been flexing its regulatory muscles and limiting its own production, but the move could also have wider consequences for global markets. Regulatory changes have already driven down the price of iron ore, a key raw material for steel production. The Chinese government has also imposed stricter data privacy regulations on firms that use the country’s data.

As growth worries persist and the Chinese economy continues to decelerate, a number of risky assets are falling in value. Stock markets fell on Monday across three continents, with the US and China both trying to contain the damage. On the other hand, the Federal Reserve is expected to scale back its bond purchases – a policy that pushed stock prices to record highs since the coronavirus pandemic hit.

Meanwhile, concerns about the economy are fueling a selloff in Chinese tech stocks. Chinese tech firms are facing heightened regulatory scrutiny and worries about the potential for foreign capital to pull out of China. A softBank CEO recently said that the company would scale back its investments in China due to regulatory concerns. But he isn’t alone in his concerns.

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