Gold soared to an almost six-year high on Tuesday on escalating U.S.-Iran tensions, while equity markets slid on disappointing economic data and uncertainty that the Federal Reserve will cut interest rates in July as has been expected.
Fed Chairman Jerome Powell said in a speech the U.S. central bank is insulated from short-term political pressures as policymakers wrestle with whether to cut rates amid slowing growth as President Donald Trump has demanded.
Equity markets have rallied this month in anticipation Fed policymakers would cut rates, but Powell’s remarks cast doubt on those expectations when he referred to the Fed’s independence.
“Clearly, he’s referring to comments from the White House,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “The market wants to hear the Fed remains steadfast - what it perceives is the correct path to follow in terms of monetary policy, rather than acquiescing to the administration.”
The U.S. dollar rebounded and gold prices retreated after Powell’s comments trimmed expectations that the Fed will cut rates by half a percentage point next month.
Gold had gained 10 per cent in price so far in June, climbing above $1,400 an ounce for first time since August 2013 after briefly touching the psychological barrier on Monday.
The dollar had slid to a three-month low against the euro and dropped to its weakest level against the Japanese yen since early January as the prospect of a Fed rate cut knocked demand. The yen had also benefited from concerns about tensions between the United States and Iran, which on Tuesday said the U.S. sanctions permanently closed the path to diplomacy between the two countries.
The dollar index rose 0.14 per cent, while the euro reversed course to fall 0.19 per cent to $1.1374. The yen strengthened 0.18 per cent versus the greenback at 107.11 per dollar.
Disappointing economic data weighed on stocks.
U.S. consumer confidence tumbled to a 21-month low in June as households grew a bit more pessimistic about business and labor market conditions amid concerns of an escalation in the trade tensions between the United States and China.
The U.S. economy’s prospects were further dimmed by other data showing sales of new single-family homes unexpectedly fell for a second straight month in May.
MSCI’s gauge of global equity markets, most major European indexes and stocks on Bay Street and Wall Street slipped.
MSCI’s gauge of stocks across the globe shed 0.62 per cent, while the pan-European STOXX 600 index closed down 0.1 per cent.
In Toronto, the S&P TSX composite index dropped 152.19 points, or 0.92 per cent, to 16,371.28.
All of the 11 major sectors finished lower on the day, with the technology sector leading losses with a 3.6-per-cent drop.
Material stocks fell 1.3 per cent, while energy stocks were down 0.6 per cent.
In New York, the Dow Jones Industrial Average fell 178.9 points, or 0.67 per cent, to 26,548.64, the S&P 500 lost 27.9 points, or 0.95 per cent, to 2,917.45, and the Nasdaq Composite dropped 120.98 points, or 1.51 per cent, to 7,884.72
Trump threatened to obliterate parts of Iran if it attacked “anything American,” in a new war of words. Tehran condemned the latest U.S. sanctions on Iran and called White House actions “mentally retarded.”
Trump is due to meet one-on-one with at least eight world leaders at the G20 summit in Osaka, Japan, at the end of the week, including Chinese President Xi Jinping, for discussions on trade, and Russian President Vladimir Putin.
Chinese investors seemed none too hopeful as Shanghai blue chips slipped 1 per cent. Japan’s Nikkei dropped 0.4 per cent.
Oil prices were mixed on Tuesday ahead of data expected to show U.S. crude stocks declining, outweighing investors’ concerns that U.S.-China trade tensions could dampen fuel demand.
Benchmark Brent crude futures settled up 19 cents, or 0.3 per cent, at $65.05 a barrel.
U.S. crude futures fell 7 cents, or about 0.1 per cent, at $57.83 a barrel.
Investors shrugged off U.S. President Donald Trump’s comments on Tuesday that the United States would obliterate parts of Iran if it attacked “anything American.”
Oil-market jitters over the escalating tension between the United States and Iran have eased after Trump targeted Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions on Monday, after calling off a retaliatory air strike, analysts said.
Sending a bullish signal, a preliminary Reuters poll showed on Monday that U.S. crude oil inventories likely fell for a second consecutive week last week.
U.S. gold futures were little changed on settlement at $1,418.7 an ounce.
Reuters