Finance
Today's pound, gold and oil prices in focus: commodity and currency check, 8 October
The pound dropped by about 0.1% against the US dollar on Tuesday, at 1.30, the lowest value in more than three weeks. The slip reflects a shift in investor sentiment, with traders paring back their bets on sterling in favour of the safe-haven US currency.
This trend has been bolstered by robust US economic data and hawkish comments from the Federal Reserve, contrasting sharply with the dovish stance expressed by Bank of England governor Andrew Bailey.
Investor unease is further exacerbated by the upcoming government budget announcement later this month, raising concerns about potential tax hikes and spending cuts.
Meanwhile, the US Dollar Index (DX-Y.NYB), which gauges the dollar’s strength against six major currencies, has extended its winning streak for six consecutive trading days, surpassing the 102 mark.
Read more: FTSE 100 LIVE: Stocks decline across Europe as UK borrowing costs escalate
Looking ahead, investors will focus on the US Consumer Price Index (CPI) data for September, set to be released on Thursday. This inflation data is expected to shed light on the Federal Reserve’s potential interest rate decisions in November.
Sterling was also lower against the euro (GBPEUR=X) in early trading, slipping 0.1% to €1.19.
Gold prices have slipped for the fifth consecutive day, hitting an over one-week low during early European trading on Tuesday, edging closer to the critical $2,630 support level.
At the time of writing, spot gold was down 0.3% at $2,635.43 per ounce, while US gold futures slipped 0.4% to $2,656.50.
This downward trend is largely attributed to diminishing expectations for a substantial interest rate cut by the Federal Reserve in November, which has undermined demand for the non-yielding yellow metal.
Despite this decline, gold’s downside remains somewhat cushioned by a modest weakening of the US dollar, which typically supports USD-denominated commodities.
Read more: Chancellor Reeves urged to change fiscal rules in budget to unlock £57bn
Geopolitical tensions, particularly ongoing conflicts in the Middle East, may also provide some support for gold prices as investors seek safe-haven assets. However, many traders are likely to adopt a cautious stance, refraining from making aggressive directional bets ahead of the upcoming release of the FOMC meeting minutes on Wednesday.
In addition, key economic indicators such as the US Consumer Price Index (CPI) and the US Producer Price Index (PPI), scheduled for release on Thursday and Friday respectively, are expected to influence short-term dollar dynamics and offer new momentum for gold prices.
Oil prices have slipped after hitting a six-week high but are still hovering around the $80 mark amid escalating fears over the conflict in the Middle East.
Brent crude futures dropped 1.5% to $76.69 a barrel, while US West Texas Intermediate (CL=F) crude fell 1.9% to $75.68 per barrel during early European trading.
Brent has been rising since Israel decided to take military actions against Hamas in Gaza, as well as tensions with Hezbollah in Lebanon and the Houthis in Yemen, all of which are linked to Iran. Since the attack on Israel on October 7 2023, these developments have served as catalysts for rising oil prices.
However, in recent weeks, the market had experienced some stability amid concerns about weakened global demand, particularly from China, and the potential risks of further disruptions to shipping in the oil-rich region.
Read more: Stocks to watch ahead of the October budget
But further gains in crude were held back by the dollar, as expectations of smaller US interest rate cuts boosted the greenback.
Traders were also watching for the reopening of Chinese markets after a week-long holiday, as the world’s biggest oil importer announced a slew of major stimulus measures.
Meanwhile, the FTSE 100 (^FTSE) was lower at the open, losing 1.2%% to 8,202 points. For more details check our live coverage here.
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Banks have had a stellar first quarter. The major U.S. banks raked in nearly $50 billion in profits in the first three months of the year, The Guardian reported.
That was largely due to Wall Street bank traders, who profited from a volatile stock exchange, Reuters showed.
But even without the extra bump from stock trading, banks are doing well when it comes to interest, the same Reuters article found. And some banks could stand to benefit even more from this one potential rule change.
Morgan Stanley thinks it could have a major impact on Citi in particular.
Upcoming changes for banks
To understand why Morgan Stanley thinks things are going to change at Citi, you need to understand some recent bank rule changes.
Banks make money by lending out money, which usually comes from depositors. But people need access to their money and the right to withdraw whenever they want.
So, banks keep a percentage of all money deposited to make sure they can cover what the average person needs.
But what happens if there is a major demand for withdrawals, as we saw during the financial crisis of 2008?
That’s where capital requirements come in. After the financial crisis, major banks like Citi were required by law to hold a higher percentage of money in order to avoid major bank failures.
For years, banks had to put aside billions of dollars. Money that couldn’t be lent out or even returned to shareholders.
Now, that’s all about to change.
Capital change requirements for major banks
Banks that are considered globally systemically important banking organizations (G-SIBs) have a higher capital buffer than community banks as they usually engage in banking activity that is far more complicated than your average market loan.
The list depends on the size of the bank and its underlying activity, according to the Federal Reserve.
Current global systemically important banks
A proposal from U.S. federal banking regulators could drastically reduce the amount that these large banks have to hold in reserve.
Changes would result in the largest U.S. banks holding an average 4.8% less. While that might seem like a small percentage number, for banks of this size, it equates to billions of dollars, according to a Federal Reserve memo.
The proposed changes were a long time coming, Robert Sarama, a financial services leader at PwC, told TheStreet.
“It’s a bit of a recognition that perhaps the pendulum swung a little too far in the higher capital requirement following the financial crisis, making it harder for banks to participate in some markets,” he said.
Natasha Luscri and Luke Miller consider themselves among the lucky ones. The couple recently bought their first home in the northwest suburbs of Melbourne.
It wasn’t something they necessarily expected to be able to do, but some good fortune with an investment in silver bullion and making use of government schemes meant “the stars aligned” to get into the market. Luke used the federal government’s super saver scheme to help build a deposit, and the couple then jumped on the 5 per cent deposit scheme, which they say made all the difference.
“We only started looking because of the government deposit scheme. Basically, we didn’t really think it was possible that we could buy something,” Natasha told Yahoo Finance.
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Last month they settled on their two bedroom unit, which the pair were able to purchase in an off-market sale – something that is becoming increasingly common in the market at the moment.
Rather perfectly, they got it for about $20-30,000 below market rate, Natasha estimated, which meant they were under the $600,000 limit to avoid paying stamp duty under Victoria’s suite of support measures for first home buyers.
“They wanted to sell it quickly. They had no other offers. So we got it for less than what it would have gone for if it had been on market,” Natasha said.
“We didn’t have a lot of cash sitting in an account … I think we just got lucky and made some smart investment decisions which helped.”
It’s a far cry from when the couple couldn’t find a home due to the rental crisis when they were previously living in Adelaide and had to turn to sub-standard options.
“We’ve managed to go from living in a caravan because we were living in Adelaide and we couldn’t find a rental with our dogs … So we’ve gone from living in a caravan, being kind of tertiary homeless essentially because we couldn’t get a rental, to now having been able to purchase our first home,” Natasha explained.
Rate rises beginning to bite for new homeowners
Natasha, 34, and Luke, 45, are among more than 300,000 Australians who have used the 5 per cent deposit scheme to get into the housing market with a much smaller than usual deposit, according to data from Housing Australia at the end of March. However that’s dating back to 2020 when the program first launched, before it was rebranded and significantly expanded in October last year to scrap income or placement caps, along with allowing for higher property price caps.
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