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Gold rallies, stocks ease as rate cut optimism fades

Tuesday,   02-Apr-2024   08:23 AM (IST)

Gold prices hit fresh all-time peaks on Monday with stocks on Wall Street closing mixed as optimism that the Federal Reserve was near to cutting interest rates faded due to a strong U.S. economy that rebuts the need for cuts anytime soon. Chinese shares led a rally around most of Asia overnight amid a broadly optimistic global economic backdrop, while the dollar rose after data showed the U.S. manufacturing sector grew in March for the first time since September 2022. What had been an optimistic reading of key U.S. inflation last week soon darkened as the market weighed the strength of the U.S. economy versus the need for immediate rate cuts. Oil prices stayed near five-month highs as markets expect tighter supply due to OPEC+ cuts and after attacks on Russian refineries, with Chinese manufacturing data supporting a stronger demand outlook. The dollar index, a measure of the U.S. currency against six major peers, rose 0.47%. MSCI's gauge of stocks across the globe, opens new tab fell 0.36%. On Wall Street, the Dow Jones Industrial Average, opens new tab fell 0.6% and the S&P 500, opens new tab lost 0.20%, but the Nasdaq Composite, opens new tab added 0.11%. European markets were closed on Monday and most markets across the globe were closed on Friday. 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 over-reacting," suggesting the U.S. central bank is content to remain in wait-and-see mode. 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. Gold pared gains as the dollar and bond yields rose. Gold prices tend to move inversely with interest rates because as rates rise, gold becomes relatively less attractive. Spot gold hit an all-time high of $2,265.49 an ounce earlier in the session. U.S. gold futures settled 0.9% higher at $2,236.50 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 yield on two-year Treasury notes, which reflects interest rate expectations, rose 9.2 basis points to 4.712%. The 10-year's yield rose 12.3 basis points to 4.317%, after earlier touching a two-week high of 4.337%. Japanese shares earlier tumbled with the yen pinned near levels that kept traders on guard for a currency intervention. The yen loitered below 152 per dollar. Japan's Nikkei, opens new tab fell 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. Brent rose 42 cents to settle at $87.42 a barrel, while U.S. crude settled up 54 cents to $83.71 a barrel.