Gold Rallies, Stocks Ease as Rate Cut Optimism Fades

KONTAN.CO.ID - NEW YORK/TOKYO. Gold prices hit fresh all-time peaks on Monday but stocks on Wall Street eased from near-record highs, with optimism that the Federal Reserve was close to cutting interest rates fading as a strong U.S. economy negates the necessity of cuts anytime soon.

Chinese shares led a rally around most of Asia overnight amid a broadly optimistic global economic backdrop, while Japanese shares tumbled with the yen pinned near levels that kept traders on guard for a currency intervention.

The dollar rose after data showed the U.S. manufacturing sector grew in March for the first time since September 2022, while the yen loitered below 152 per dollar, keeping traders on edge over the threat of intervention.

The dollar index, a measure of the U.S. economy against six peers, rose 0.55%.

Oil prices stayed near five-month highs as markets expected tighter supply due to OPEC+ cuts and after attacks on Russian refineries, with Chinese manufacturing data supported a stronger demand outlook.

Fed Chair Jerome Powell said on Friday that inflation data released that day "is what we were expecting" and that "you won't see us overreacting," suggesting the U.S. central bank is content to remain in wait-and-see mode.

"The potential for a cut keeps getting pushed off because Powell says almost with a giddy tone that this is a great environment. Interest rates are above average, not wildly above, but above average. We don't have to cut them because the economy is doing so well," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

"You don't want another 1970s event where the Fed cut too soon and inflation re-ignited and took off. It's better to keep those cuts in your pocket," Ghriskey added.

The Dow Jones Industrial Average fell 0.69%, the S&P 500 lost 0.39% and the Nasdaq Composite dropped 0.2%.

European markets were closed on Monday and most markets across the globe were closed on Friday.

Friday's report on personal consumption expenditures (PCE) price index data earlier drove expectations for easier U.S. monetary policy, lifting gold to a fresh record high. U.S. gold futures gained 0.93% to $2,238.10 an ounce.

U.S. Treasury yields rose as the stronger-than-expected manufacturing data raised doubts on whether the Fed can deliver on the three interest rate cuts outlined in its forecast at its last policy meeting.

The two-year Treasury yield, which reflects interest rate expectations, rose 9.8 basis points to 4.718%, while the yield on the benchmark 10-year note was up 13.7 basis points at 4.331%.

Japan's Nikkei tumbled 1.4% as of the close, weighed down by worries about yen-buying intervention that would hurt exporter profit outlooks and returns for foreign investors.

A corporate survey showing a worsening mood among big manufacturers gave another reason to sell stocks on the first day of Japan's new fiscal year, with analysts saying investors took the opportunity to book profits with the Nikkei still close to the record peak reached just over a week ago.

U.S. crude recently rose 1.27% to $84.23 per barrel and Brent was at $87.74, up 0.85% on the day.