Antipodes brace for gold slump as Trump goes with Warsh for Fed chair

New Zealand and Australian markets will catch up on the roiling of gold and silver prices after US President Donald Trump tapped former Federal Reserve governor Kevin Warsh to succeed Jerome Powell as chair, cooling some of the nerves that the central bank would go into overdrive in cutting interest rates which have been pushing precious metals to new heights.

Gold and silver prices – which have been buoying mining stocks such as Santana Minerals – slumped on the news, while stocks on Wall Street fell and the greenback rallied on Friday as investors weigh up whether Warsh will carry on his track record of being an inflation hawk.

Meanwhile, the Reserve Bank of Australia is poised to review its monetary policy settings on Tuesday, with bond traders pricing better-than-even chance of a rate hike across the Tasman, while Statistics New Zealand’s employment figures on Wednesday are expected to show the jobs market is getting better but has plenty of slack in it.

And US corporate earnings season continues with Google-parent Alphabet and Amazon among those reporting this week, with about three-quarters of firms that have filed their results beating analysts’ expectations.

A new chair

US President Donald Trump went with the frontrunner in nominating former Fed governor Kevin Warsh to succeed the central bank’s chair, Jerome Powell, in May, easing some of the uncertainty in markets that had been fuelling gains for precious metals such as gold and silver on the nominee’s track record of focusing on inflation.

Gold and silver prices suffered their worst one-day slides since 1980, with golf futures at US$4,909 at 7am in Auckland, while Bitcoin slumped to US$77,348. The greenback rallied on the nomination, with the kiwi trading at 60.21 US cents at 7am in Auckland from 60.45 cents last week.

“Warsh is seen as a safe pair of hands, and his nomination triggered a wave of unwinding of safe-haven trades, weighing heavily on precious metals and Bitcoin,” ANZ Bank NZ economists said in a note. “Those moves then seemed to feed on themselves, ultimately taking late-comers such as silver around 27% lower.”

Stocks on Wall Street were broadly weaker as the S&P 500 and Dow Jones Industrial Average both declined 0.4% and the tech-heavy Nasdaq Composite slipped 0.9%, while European markets were generally stronger with the UK’s FTSE 100 up 0.5%, Germany’s DAX 30 gaining 0.9% and France’s CAC 40 rising 0.7% as data showed the eurozone economy grew 0.3% in the December quarter.

Still earning

US corporate earnings season continues this week, with about 33% of S&P 500 firms having reported so far. Of that, three-quarters have beaten analysts’ earnings expectations, lagging behind the rate of positive surprises in recent years, according to FactSet analysis.

Among the big names on the calendar this week, Google-parent Alphabet and Amazon are due, as is Sharesies favourite Palantir Technologies, Eli Lilly & Co, Novo Nordisk, and Walt Disney Co, which may provide an update on chief executive Bob Iger’s succession planning.

Australian futures are pointing to a 0.7% decline for the resources-heavy S&P/ASX 200 index when trading opens across the Tasman, which has been buoyed in recent weeks by resurgent mining stocks as BHP reclaimed the crown of being Australia’s biggest listed company.

The Reserve Bank of Australia is expected to hike the target cash rate a quarter point to 3.85% on Tuesday after a string of data showed sticky inflation across the Tasman.

Stats NZ’s household labour force survey is the main local piece of data when it comes out on Wednesday, and is expected to show a stable unemployment rate at 5.3% and a pickup in jobs growth.

Data today include the household living-costs price index, showing how inflation lands on different types of households.

Reporting by Paul McBeth. Image from Shengnan Gao on Unsplash.