Stocks shake off stimulus doubts, gold goes wild

LONDON (Reuters) – Stock markets held their own on Wednesday after doubts emerged about fresh U.S. stimulus, while it was another wild day for gold and silver and a tough one for Turkey’s troubled lira.

A lively European session saw sterling shrug at Britain’s worst economic slump on record, gold pile on almost 4% after its biggest fall in seven years [GOL/] and bond yields go higher amid a deluge of global debt issuance. [GVD/EUR]

Turkey’s volatile lira took another 1.5% pounding as concerns about a currency crisis there took hold again, while New Zealand’s dollar recoiled too as its central bank flagged negative interest rates could be coming.

Higher oil stocks had Wall Street’s S&P 500 not far from its long-awaited return to record highs although there was still plenty to contemplate. [.N]

Asian stocks had struggled overnight as sniping continued between Beijing and Washington over Taiwan and Tik Tok. China had also reported weaker-than-expected loan growth and a U.S. Senate leader’s description of cross party stimulus talks being “at a bit of a stalemate” hadn’t helped either.

“The bias at moment is probably to fade the S&P 500 and fade risk generally,” said Societe Generale strategist Kit Juckes.

“What happens next probably depends on what happens in U.S. equity markets (which are focused on stimulus)… That might be the decisive factor for short-term sentiment.”

Barring a bipartisan deal on stimulus, the U.S. economy could be left with measures U.S. President Donald Trump called for on Saturday through executive orders to bypass Congress.

“We have enormous uncertainty. It appears it’s getting harder for both sides to compromise as the election is nearing… Trump’s proposals would be smaller than markets have expected. There’s question over whether they are viable, too,” said Junpei Tanaka, strategist at Pictet.

The U.S. election campaigns are also set to gather momentum after Democratic presidential candidate Joe Biden selected Senator Kamala Harris as his choice for vice president on Tuesday.

Graphic: 2020 Global asset performance here


Bond markets were also driving sentiment. The 10-year U.S. Treasuries yield climbed to 0.67% in Europe to stay at a one-month high.

The 10-year yield (+6.6bps) and 30-year (+7.5bps) yields saw their biggest increases in over a month on Tuesday, while the 2s10s curve steepened 4.6 basis points, the most since June 5. The gap between U.S. two-year and 10-year Treasury yields is a metric closely watched for signs of a slowdown.

On top of hedge selling ahead of the largest-ever 10-year note auction later in the day, bonds have also lost some of their safe-haven allure on rising hopes of vaccines against COVID-19.

Russian President Vladimir Putin said on Tuesday his country was the first to grant regulatory approval to a COVID-19 vaccine after less than two months of human testing.

While Moscow’s decision raised some eyebrows, the news lifted hope some of the vaccines currently in development would become available earlier than expected.

Oil prices also climbed after a bigger-than-expected drop in U.S. inventories, with Brent up 1.7% at $45.27 a barrel. U.S. crude was up 1.3% at $42.16. [O/R]

The most dramatic moves took place in precious metals though.

Gold swung from being down 2% to being up 1.7% at $1,935 per ounce, a day after it suffered its biggest daily fall in seven years. Silver was even more wild, rising nearly 4% in Europe after a 15% plunge on Tuesday. [GOL/R]

“The froth has been blown off the top of the gold market, and now fundamental price discovery is going on,” IG Markets analyst Kyle Rodda said.

Bullion has gained 27% so far this year, as investors buy it as a hedge against fears of currency debasement as central banks flood economies with free money in response to the global coronavirus crisis.

Graphic: 2020 asset performance here

Graphic: World FX rates in 2020 here

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