Dubai: Global investors will turn their focus to the trade war triggered by the United States, which may weigh on market sentiment in the medium term. But the current uncertainty may fail to lift gold, considered as a safe-haven metal.
A robust US jobs report, which locked in expectations of an interest rate hike by the Federal Reserve this month, helped equities surge on Friday. The Dow Jones Industrial Average rose 0.9 per cent to 24,635.21, while the S&P 500 index closed 1.08 per cent higher at 2,734.62.
“A positive labour market report will be a bullish driver in the short-term but as global trade wars intensify, treasury yields could run higher again, putting stocks under pressure once more,” said Konstantinos Anthis, head of Research at ADS Securities, in a note.
China said on Sunday that all the progress made in terms of trade will be withdrawn if the US imposes tariffs. This development came after the US imposed tariffs on Mexico, EU and Canada.
Dollar gains
The dollar index is expected to gain further after rising as much as half a per cent on Friday. The index hit a session high of 94.45, before closing 0.19 per cent higher at 94.16.
“The greenback has been on the defensive in recent sessions, offering dollar bulls the opportunity to buy the dip and look for renewed strength, but this will ultimately come down to the data prints. This month-on-month printing will be enough to reinvigorate the dollar rally,” Anthis said.
“We believe that the dollar stands to benefit from this mixture of catalysts: the bearish political climate in Europe should drive European majors lower versus the dollar,” he added.
The dollar index has gained 2.21 per cent so far this year.
Gold
A stronger dollar is expected to weigh on gold, whose prices fell 0.4 per cent to $1,299.30 (Dh4,772.32) per ounce, after losing 0.5 per cent in the past week.
“On most previous occasions during this present rate hike cycle, gold has tended to weaken ahead of FOMC [Federal Open Market Committee] meetings, only to rally strongly afterwards,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Meanwhile, the net-long position held by hedge funds in Comex gold futures dropped to a 10-month low while open interest was placed at a five-month low.
“Both observations reflect a market currently being given limited attention, with many sitting on the fence to find out how the market will react to a break either below $1,286 [per ounce] support or above [the] $1,308 resistance,” Hansen said.
