What’s next? – GOLD, OIL 02.03.18

GOLD

Gold prices were up in Asian trading hours on Friday, with market participants looking ahead to a weekend fulfilled with political risks in Europe.

On the Comex division of the New York Mercantile Exchange, gold futures were up 1.00 percent at $1.318.30 a troy ounce as of 07:05 GMT.

On Thursday, bullion prices notched down to two-month lows following better-than-expected jobless claims, which boosted the dollar across the board.

Improving labor market conditions increase the possibility of further monetary policy changes, especially rate hikes in the near future. Investors estimate four rate moves in 2018.

According to Fed funds tracked by CME Group’s FedWatch program, market participants are currently weighing an 85 percent probability of a 25 basis-point rate hike by March.

The US dollar index, which measures the greenback against six major currencies, was trading 0.10 percent lower at 90.20 by the time of this writing.

The dollar extended gains in the prior session following remarks by Fed Chair Jerome Powell at his first semi-annual monetary policy testimony to the House Financial Services Committee.

“The economic outlook remains strong, … Further gradual increases in the federal funds rate will best promote attainment of both of our objectives.”

A stronger currency makes the metal more expensive for holders of foreign currencies, while higher interest rates elevate the opportunity cost of keeping non-yielding assets such as gold.

On the data front, the core PCE, Fed’s favorite inflation measure, came in line with market expectations at a monthly growth rate of 0.3 percent and 1.5 percent year-over-year.

In other news, personal spending for January also met forecast at 0.2 percent. The Institute for Supply Management said its manufacturing PMI was above estimation at 60.8 points.

Ahead in today’s session, traders will be looking at Michigan University’s consumer expectations and consumer sentiment gauges for February as of 15:00 GMT.

OIL

Oil benchmarks were down in early trading hours on Friday, as concerns over an increasing US output continued to weigh on sentiment, while the oil rig count remained in focus.

The US West Texas Intermediate crude contracts were down 0.15 percent to $60.90 per barrel as of 07:05 GMT. Meanwhile, Brent futures eased 0.03 percent to $63.81 a barrel.

Crude benchmarks settled in red territory on Thursday as fears over rising crude production in the United States weighed on sentiment, as well as a stronger dollar.

A stronger dollar is seen as a negative driver for commodities as they become more expensive for investors holding foreign currencies.

In its latest report, the US Energy Information Administration said US domestic crude output rose to 10.3 million barrels per day in the week ended February 23. That level puts the US dangerously close to Russia and Saudi Arabia, current world leaders by production.

However, market players remained a little positive as crude inventories showed an unexpected build last week. The report said crude inventories rose by 2.4 million barrels.

Also, it showed gasoline supplies adding 2.483 million barrels, against expectations for a 190,000 barrels reduction. Distillate products went down by 960,000 barrels.

In other news, a survey conducted by Bloomberg News showed OPEC producers continued to cut their production levels by 80,000 barrels a day to 32.28 million a day in February.

Ahead in the session, market players will focus on the release of Baker Hughes’ oil rig count.

FortFS