The Overnight Report: Shares Up, Gold, Oil Down

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This story features RESMED INC.
For more info SHARE ANALYSIS: RMD
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck

Happy New Year!

FNArena is ramping up its service for the fresh calendar year ahead, a process that started yesterday with the publication of the daily Australian Broker Call Report. Yesterday's update played catch up with the holiday break, but the stockbroking community is not yet back in full working mode, hence low expectations for the week ahead seem but the right attitude.

Greg Peel will return later this month. In the meantime, the daily Overnight Report is complemented with commentary on overnight markets and price action as provided by market analysts at XS.com.

The Australian share market on Tuesday morning looks poised to compensate for Monday's weakness, and then some, as US markets decided to rally inspired by positive news from chipmaker Nvidia whose intention to expand AI into personal PCs was greeted with renewed enthusiasm.

Offsetting the positive impulse from the world's largest chipmaker was yet another technical set-back for Boeing's 737 Max planes. Most of the buying occurred towards the end of the session.

US bond yields retreated somewhat, back below 4%. Commodities were mixed, though mostly weaker, with crude oil futures and precious metals the day's main laggards. Key energy producer Saudi Arabia has decided to discount the price of its oil in order to stimulate demand.

Iron ore posted a small retreat.

The week ahead will keep inflation and US bank earnings on investors' radar. US price action seems to have been positive for Rio Tinto, but not for BHP shares, but ResMed ((RMD)) shares are taking the day's crown with a rally exceeding 3.5%.

Further below is a review of US economic data updates and price action in precious metals overnight.

Rania Gule reports on precious metals:

The price of gold (XAU/USD) continues its decline during Monday's trading, reaching near its lowest level in two weeks at US$2005. This drop followed the strong monthly employment details in the United States on Friday. The non-farm payrolls (NFP) report indicated that the U.S. labor market remains resilient, forcing investors to scale back expectations for further monetary easing by the Federal Reserve. This, in turn, supports the rise of U.S. Treasury bond yields, acting as a supportive force for the U.S. dollar and diverting liquidity away from gold, which does not yield returns.

I believe the markets are still pricing in a greater chance of the Federal Reserve's first interest rate cut at its March policy meeting, followed by cumulative interest rate cuts by 25 basis points for 2024. This prevents a strong rise in the U.S. dollar, providing some support for the gold price.

The generally weaker risk tone in the markets should act as a supportive force for the rise of precious metals considered a haven. Tomorrow, the markets are eagerly awaiting the speech scheduled to be delivered by the President of the Federal Reserve Bank of Atlanta, Raphael Bostic, to gain some momentum in the absence of significant data until the release of the Consumer Confidence Index on Thursday and the Producer Price Index on Friday.

A study by the Institute for Supply Management (ISM) also indicated a contraction in the U.S. services sector, which represents over two-thirds of the economy, last month. The non-manufacturing ISM index fell to 50.6 in December, the lowest reading since May, and employment numbers dropped to 43.3 – the lowest level since July 2020.

Furthermore, the President of the Federal Reserve Bank of Dallas, Robert Kaplan, pointed out that if the U.S. central bank does not maintain sufficiently tight financial conditions, there is a risk of inflation rising again, negatively impacting the markets. While the yield on 10-year U.S. government bonds remains above 4.0%, increasing negative pressure on the gold price in the short and medium term.

From my perspective, economic issues in China, along with escalating tensions in the Middle East and Ukraine, could provide some support for gold, which is considered a haven in the period leading up to the release of U.S. Consumer Inflation figures on Thursday.

Considering the above factors, I believe that the price of gold (XAU/USD) is under some renewed selling pressure on the first day of the week, approaching again the lowest level in two weeks touched after the better-than-expected U.S. monthly job data released on Friday.

Additional details showed that the unemployment rate remained unchanged at 3.7%, and annual wage inflation increased to 4.1% from 3.9% in November. This indicates that the U.S. labor market remains flexible, giving the Federal Reserve more room to keep interest rates high for a longer period, supporting high U.S. Treasury bond yields and the strength of the dollar, while increasing pressure on gold prices, which do not yield returns.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

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