Gold is preparing for its best week since 2016. The ounce of precious metal traded at $1680 and the strengthening positive momentum could
encourage a further rise to the $1700 mark. But gold is not virus-proof. There is a large build of speculative long positions in gold and last
week showed that the negative correlation between gold and risk assets may suddenly break when speculative longs judge it’s time to realize
profits.
WTI crude remains in bears’ hands, even after OPEC agreed to lower production by additional 1.5 million barrels per day. But
the deal is conditional on Russia’s approval. Now, all eyes are on the final decision from the OPEC+ meeting today. If news of a possible
1.5-million bpd cut didn’t trigger any upside move in oil prices, it is certainly because investors remain skeptical about Russia’s
response to the proposal. No investor is willing to play Russian roulette in such a moody market environment, especially given that the
chances of Russia vetoing further cuts are relatively high. If that is the case, the price of a barrel could sink toward the $40 level. If,
however Russia agrees on deeper cuts, then the OPEC+ action which has topped analyst estimates, could send WTI rallying toward $50 per
barrel.
In the currency markets, the US dollar continues bleeding. Released yesterday, US factory orders shrank 0.5% in January,
more than -0.2% expected by analysts and versus +1.9% printed a month earlier. Labor productivity in non-farm businesses rose 1.2% y-o-y in
the fourth quarter, less than 1.4% penciled in by analysts, while manufacturing productivity dropped 0.8% during the same period. Overall
productivity grew by most since 2010, giving some margin to take the coronavirus shock on output, but investors were not in a mood to find a
silver lining.
Due today, the nonfarm payrolls will either cool off the US dollar sell-off or further break the greenback. A consensus
of analyst expectations points at 175’000 new nonfarm jobs in February, less than 225’000 printed a month earlier. A soft read should
further revive the Federal Reserve (Fed) doves and weigh on the US dollar. While a second straight month read above the 200’000 should give a
sigh of relief to investors, propose a recovery in US yields, but may not reverse the solid dive that factors in a deeper Fed rate cut later this
month.
The US 10-year yield plunged to 0.83%. Activity in US sovereign markets now suggests 84% chances for another 50-basis-point
cut at the FOMC’s March 15-16 meeting, and 16% chances for a 75-basis-point cut.
By Ipek Ozkardeskaya
