Dollar Holds Drop, Gold Gains as Ukraine Violence Flares

May 4, 2014

Sydney-Australia (May 5)  The dollar maintained losses against most major currencies and Ukrainian bonds extended their decline as violence in the nation’s east overshadowed the biggest increase in U.S. payrolls in two years. Gold climbed a second day while New Zealand stocks retreated.

The greenback lost 0.2 percent versus the South African rand by 8:22 a.m. in Tokyo and touched an almost three-week low versus New Zealand’s dollar. Yields on 10-year Ukrainian government debt climbed a fourth day in early trading. Gold rose 0.1 percent to $1,300.15 an ounce after surging the most in almost two months May 2. The NZX 50 Index (NZSE50FG) dropped 0.3 percent in Wellington, with Standard & Poor’s 500 Index futures up 0.1 percent after a 0.1 percent retreat in the U.S. gauge May 2.

The bigger-than-estimated jump in April nonfarm payrolls faded into the background May 2 as tussles spread to the Ukrainian city of Odessa, where more than 40 people died in a building fire. Troops are now trying to dislodge rebels in the country’s Donetsk area, near the Russian border. While markets in Japan and South Korea are closed today and tomorrow for holidays, investors are awaiting a final reading on the HSBC Holdings Plc/Markit Economics Ltd. China manufacturing gauge.

“The overall stance of markets was one of mild risk aversion,” Raiko Shareef, a currency strategist in Wellington at Bank of New Zealand Ltd., wrote in a client note e-mailed today. “Commentators narrowed in on signs of weakness within the payrolls report” and the “dollar’s reversal was accelerated by unfolding news from Ukraine.”

Dollar Index

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, was little changed today. The gauge ended May 2 down 0.1 percent after rising as much as 0.4 percent amid the payrolls data. The rand climbed to 10.4624 per dollar today in a sixth day of gains, while the yen was little changed at 102.24 per dollar after climbing 0.1 percent May 2. New Zealand’s currency, known as the kiwi, traded at 86.59 U.S. cents after reaching the highest intraday level since April 15.

The NZX 50, the first major stock index to open in the Asia Pacific region, fell today after posting its third straight weekly advance, up 1.5 percent last week.

U.S. employers added 288,000 workers in April, marking the biggest upside surprise in the payrolls data since February 2012. Economists surveyed by Bloomberg predicted an increase of 218,000. The jobless rate dropped to 6.3 percent, the lowest level since the collapse of Lehman Brothers in 2008. Workplace participation, however, matched a 36-year low and average hourly earnings stagnated, up 1.9 percent in the 12 months to April, the smallest gain this year.

Stimulus Speculation

The Dow Jones Industrial Average (INDU) fell 0.3 percent May 2, paring its weekly advance to 0.9 percent, while futures on the Hang Seng Index China Enterprises Index of mainland Chinese shares listed in Hong Kong dropped 0.1 percent. Contracts on Australia’s S&P/ASX 200 Index added 0.1 percent in most recent trading. The Bloomberg China-US Equity Index of the most-traded Chinese equities in New York gained 0.5 percent May 2, capping a weekly advance of 2 percent, led by companies with state backing.

Stocks climbed on expectations China’s leaders will step in to help stimulate Asia’s largest economy, said Michael Wang, an emerging-markets strategist in London at Amiya Capital LLP. HSBC and Markit will probably confirm an April reading of 48.4 for their China manufacturing purchasing managers’ index, up from 48.3 in March though still signaling contraction. An official gauge of April factory output released last week came it at a lower-than-projected level of 50.4, from 50.3 in March.

Precious Metals

Gold, regarded as a haven investment, jumped 1.2 percent to $1,299.70 per ounce May 2, climbing for the first day that week and trimming its five-day drop to 0.3 percent. Silver gained 0.3 percent to $19.55 an ounce in early trading today, following a 2.4 percent gain May 2, the most since February. Platinum rose 0.3 percent in a second advancing day.

Ukrainian soldiers took back a television tower in the Donetsk area at the weekend, after it was seized by pro-Russian forces, Interior Minister Arsen Avakov said on his Facebook feed. Seven people died amid fighting in Kramatorsk, northern Donetsk, according to website, while an assault by Ukrainian troops on the eastern city of Slovyansk saw militants shoot down two helicopters, killing two pilots, the Defense Ministry said.

Odessa Fire

Russian sympathizers had taken refuge in the Odessa building later engulfed by fire, as fighting between supporters of the government in Kiev and football fans on one side and Russian backers on the other intensified in the city on the Black Sea. U.S. President Barack Obama and German Chancellor Angela Merkel have set a May 25 trigger for possible economic sanctions against Russia over their actions in Ukraine.

The yield on 10-year Ukrainian government debt rose six basis points today to 10.85 percent, after jumping 12 basis points May 2, when Russian bonds and the ruble fell.

Yields on 10-year Treasuries fell a fourth day May 2, declining three basis points to 2.59 percent for the lowest close since Feb. 3. Thirty-year rates dropped five basis points, or 0.05 percentage point, to 3.37 percent, the lowest level since June last year. The Federal Reserve last week announced its fourth straight reduction in monthly bond purchases and indicated that the world’s biggest economy is gaining momentum.

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