Gold Above $4,300 an Ounce as Middle East Talks Ease Rate-Hike Bets — Market Talk

0757 GMT - Gold prices hold above the $4,300-an-ounce mark after Wednesday's rally amid growing optimism that a deal to reopen the Strait of Hormuz will ease inflationary pressures and interest-rate hike expectations. "The market is increasingly focusing on the disinflationary implications of lower energy prices," analysts at ING say. "Expectations for Federal Reserve tightening have eased, improving the outlook for non-yielding assets such as gold." Oil prices are headed for a weekly loss of more than 8%, with Brent crude trading below $80 a barrel as investors grow optimistic about negotiations between Iran and Oman on reopening of the Strait of Hormuz. In early trading, New York gold futures rise 0.2% to $4,314 a troy ounce, up nearly 4% on the week. ([email protected])0738 GMT - Yields on U.K. government bonds, or gilts, rise as markets price in the possibility of the U.S. Federal Reserve raising rates in the coming months. Recently-released U.S. economic data, including the ADP labor market data and PMI data, show resilient activity, raising concerns that inflationary pressures could force the Fed to raise rates. Investors also eye developments in the Middle East. Iran and Oman are finalizing a draft agreement to reopen the Strait of Hormuz which would allow the U.S. and Iran to return to the negotiating table, The Wall Street Journal reports. Ten-year gilt-yields climb 1.1 basis points to 4.893%, Tradeweb data show. ([email protected])0734 GMT - Bitcoin rises slightly on hopes for a resolution to the Middle East conflict, although the cryptocurrency continues to trade in a narrow range. Iran and Oman are finalizing a draft agreement to reopen the Strait of Hormuz which would allow the U.S. and Iran to return to the negotiating table, The Wall Street Journal reports. Investors are balancing optimism over the reopening of the Strait against a "messier U.S. macroeconomic picture," Tickmill Group's Patrick Munnelly says in a note. Oil has softened, giving risky assets some relief, but U.S. services prices are still high, labor market data are cooling and Federal Reserve policymakers aren't fully aligned, he says. Bitcoin rises 0.1% to $64,877, LSEG data show. ([email protected])0723 GMT - Eurozone government bond yields rise slightly in early trade. Investors are focused on the prospect of the reopening of Strait of Hormuz and also await key U.S. monthly jobs data Friday. Iran and Oman were finalizing a draft agreement Wednesday to reopen the Strait of Hormuz, The Wall Street Journal reported. Eurozone government bonds "remain largely a function of the oil and Strait of Hormuz," Mizuho analysts say in a note. Government bond auctions are due from Spain and France, while Germany will detail next Wednesday's long-end bond auction. Local economic data, including eurozone retail trade, could provide some input. The 10-year Bund yield rises 0.9 basis points to 3.111%, according to LSEG. ([email protected])0713 GMT - The Swedish krona rises to a seven-week high against the euro after data showed underlying inflation unexpectedly accelerated in July. Sweden's consumer price index with fixed interest rate, excluding energy, rose to 0.6% year-on-year in July from 0.4% in June. The headline CPIF rate eased to 0.7% in July due to a pullback in energy prices although this was higher than expected. Sweden's subdued inflation has kept the Riksbank cautious over raising interest rates. The euro falls to as low as 10.9417 krona after the data from 10.9591 beforehand. ([email protected])0652 GMT - The dollar rises slightly as markets continue to bet on the Federal Reserve raising interest rates this year despite more positive headlines on the Iran war easing oil prices. Fed governor Lisa Cook said Wednesday she's prepared to support a rate rise if necessary as inflation is too high. The market prices a 60% probability of a Fed rate rise in September and fully prices a move by December, LSEG data show. Meanwhile, the WSJ reports that Iran and Oman are finalizing a draft agreement to reopen the Strait of Hormuz. If a deal is announced, the U.S. and Iran would return to the negotiating table. The DXY dollar index rises 0.1% to 99.758.([email protected])0558 GMT - Sticky oil prices could limit the potential for 10-year German Bund yields to fall swiftly towards early July levels--below 2.90%--, while setbacks in Bunds remain better buying opportunities, Commerzbank's Erik Liem and Rainer Guntermann say in a note. Risk sentiment is expected to improve on hopes for resuming traffic via the Strait of Hormuz, the rates strategists say. "Hopes for a more tangible announcement of a deal between U.S. and Iran and prospects of resuming vessel traffic through the Strait of Hormuz, alongside signals that the U.S. is poised to lift Iran-related sanctions, should bolster risk sentiment further," they say. Thursday's government bond issuance in the eurozone will come from Spain and France. The 10-year Bund yield closed at 3.104% on Wednesday, according to LSEG. ([email protected])0553 GMT - The U.S. Treasury's change of wording in its quarterly refunding announcement "could represent a desire to maintain flexibility given structural changes in demand for Treasurys," J.P. Morgan analysts say in a note. "Taken at face value, this shift would indicate there are two-sided risks to Treasury auction sizing over the medium term," they say. The Treasury changed the statement from evaluating 'potential future increases to nominal coupon and FRN [floating rate note] auction sizes" to "potential future changes." The analysts say they think Treasury is "somewhat uncomfortable" with the recent rise in Treasury yields, and that this subtle guidance shift is aimed at opening up ambiguity in this distribution to reduce bearish pressure. ([email protected])0538 GMT - The U.S. dollar index is little changed near 99.7 in Asian trading. A joint statement from Iran and Oman on a proposed shipping route through the Strait of Hormuz is under review and in the final drafting stage. The agreement doesn't involve the U.S. Samara Hammoud, currency strategist at CBA, assigns around a 55% chance of a U.S.-Iran peace deal being reached by early September. ([email protected]; X @JamesGlynnWSJ)0534 GMT - U.S. Treasury yields are little changed in Asian trade, as investors are somewhat cautious ahead of Friday's payrolls data and a potential deal in the Middle East. Iran and Oman were finalizing a draft agreement Wednesday to reopen the Strait of Hormuz. The deal would give Tehran oversight of ships entering the Persian Gulf but wouldn't let it levy tolls or service fees, people familiar with the matter said. "Therefore, until a more positive development in the Middle East is confirmed, and ahead of tomorrow's important U.S. employment data (NFP), markets have taken a wait-and-see stance," says Karl Steiner of SEB in a note. The two-year Treasury yield rises 1 basis point to 4.188%, while the 10-year yield declines 0.6 basis points to 4.610%, according to Tradeweb. ([email protected])0530 GMT - Australia's goods trade balance bounced back into surplus in June, though the trend continues to inch lower. Export values rose 9.6% on month, while imports remained roughly unchanged. The trade balance is set to remain under pressure, says Oscar Guth, an economist at Oxford Economics. The recent strength in exports partly reflects a catch-up in shipments after weather-related disruptions earlier this year. The renewed closure of the Strait of Hormuz is lifting oil prices again, and data center equipment imports will keep capital imports elevated in the months ahead, Guth adds. ([email protected]; X @JamesGlynnWSJ)0527 GMT - A further increase in the issuance of Japanese government bonds for retail investors would likely reduce or constrain market issuance of JGBs, Barclays' Shinichiro Kadota and Ayao Ehara say in a note. It could also contribute to a "bull flattening" of the long- and superlong-end sectors of the JGB curve through greater absorption of interest rate risk by households, they say. In case of 'bull flattening, yields on long-dated government bonds fall more sharply than on short-dated ones. "By contrast, the impact on maturities up to the intermediate sector may be broadly neutral, as deposit outflows could reduce banks' capacity to invest in JGBs," the rates strategists say. Household holdings of JGBs trended higher in the past few years, they say. ([email protected])