During the Asian session on Thursday (January 19), spot gold fluctuated slightly and was currently trading around $1903 per ounce. Although the U.S. PPI data, retail sales and other data in December performed poorly, the U.S. dollar once refreshed a seven-and-a-half-month low to around 101.51, and the price of gold rose to around $1,925 on Wednesday, but Fed officials still reiterated their support for raising the target interest rate to 101.51. More than 5%, which helped the dollar recover its losses, and the morale of gold was also hit. Gold prices fell back to $1,904.40 an ounce on Wednesday.
In view of the fact that the gold price has been repeatedly blocked, and the resistance above 1920 is relatively strong, investors need to beware of the risk of a further pullback in the gold price in the short term. However, U.S. bond yields fell nearly 5% on Wednesday and hit a new low of 3.366% on Thursday since Sept. 13, which may still limit the room for a correction in gold prices.
“We should now have a bigger correction,” said Daniel Pavilonis, senior market strategist at RJO Futures. “We’ve seen the 10-year yield fall sharply — from just under 4% to 3%. At the same time, we Seeing a big rally in the metals. I think we’re going to see a pullback from that rally…Gold could drop $150 from where it’s at now, and that would be a buying opportunity.”
Changes in the number of Americans filing for unemployment benefits, new housing construction permits, and new housing starts will be released this trading day. In addition, you need to pay attention to the speeches of Federal Reserve Vice Chairman Brainard, the minutes of the ECB meeting and the speeches of ECB officials.
U.S. retail sales hit biggest drop in a year in December; manufacturing output hits biggest drop in nearly two years
U.S. retail sales fell by the most in a year in December, weighed down by lower purchases of motor vehicles and a range of other goods, keeping consumer spending and the broader economy on a downward growth trajectory heading into 2023.
Retail sales fell for a second straight month, weighed down by weakness in sales of goods, which was undercutting factory output. Other data on Wednesday showed manufacturing output fell by the most in nearly two years in December, while producer prices also fell sharply from the previous month.
Widespread signs of weakening demand and fading inflation could prompt the Fed to further scale back its pace of rate hikes next month, but won’t pause monetary policy tightening anytime soon as the labor market remains tight. The Fed is in its fastest rate hike cycle since the 1980s.
“In times of economic uncertainty, consumers may be pulling back on spending,” said Jeffrey Roach, chief economist at LPL Financial. “The economy is on a downward trajectory and the risk of a recession in 2023 is rising.”
12 Retail sales plummeted by 1.1% month-on-month, the largest drop since December 2021. The November data was revised to show a drop of 1.0%, compared with a previous drop of 0.6%.Economists had forecast sales falling 0.8%. December retail sales rose 6.0% year-on-year.
Retail sales are not adjusted for inflation. The decline in retail sales in December was likely due in part to lower commodity prices that month. Holiday shopping has also been brought forward to October as consumers take advantage of discounts from retailers.
The cold snap in December may have affected sales, especially at restaurants and bars. Lower gasoline prices, which have hit revenues at gas stations, also contributed to the small drop in sales. In addition, consumption is shifting to services.
Economists at Bank of America said the model the government used to strip out seasonal fluctuations from the data had not fully adjusted for a shift toward early holiday shopping since the pandemic began.
Even accounting for those distortions, rising interest rates have raised the cost of credit, and many Americans take out loans to make purchases, which has eroded retail sales in recent months.
Excluding autos, gasoline, building materials and food services, core retail sales fell 0.7 percent in December after confirming a 0.2 percent decline in November.
Core retail sales are closely tied to the consumer spending component of gross domestic product. The decline in core retail sales will likely be offset by an expected increase in spending on services. Consumer spending continued to be supported by a tight labor market that kept wages high.
“As consumers return to more of a pre-pandemic ‘normal’ life of traveling, eating out and attending in-person events, they are shifting spending more toward services,” said Will Compernolle, senior economist at FHN Financial.
Consumer spending adjusted for inflation rose 0.5% in October and was unchanged in November, with economists expecting overall consumer spending growth in the fourth quarter to outpace the 2.3% annual growth recorded in the third quarter.
Auto dealership sales fell 1.2%. Receipts at gas stations fell 4.6%. Online retail sales fell 1.1%. Sales at furniture stores plunged 2.5%. Receipts at food service and beverage outlets, the only services category in the retail sales report, fell 0.9%.
Sales at electronics and appliance stores fell 1.1%. Clothing store sales also fell, as did receipts at general merchandise stores. But sales rose at sporting goods, hobby and musical instrument stores and suppliers of building materials and garden equipment.
The Fed raised its policy rate target range by 425 basis points last year, from near zero to 4.25%-4.50%, the highest level since late 2007. The Fed projected in December that borrowing costs would rise by at least another 75 basis points by the end of 2023.
According to the CME’s FedWatch tool, financial markets have priced in the possibility of a 25 basis point rate hike at the Fed’s Jan. 31-Feb. 1 meeting.
Fourth-quarter GDP growth is estimated to have been as high as a 4.1 percent annualized rate, also reflecting the largest narrowing in the trade deficit since early 2009 in November. The economy grew at an annual rate of 3.2% in the third quarter. Still, the economy has weakened momentum heading into 2023. Wage growth is slowing, and savings are falling.
A separate report from the Fed showed that manufacturing output fell 1.3% in December and was much weaker in November than initially forecast.
Most economists expect the economy to slide into recession in the second half of the year, though they are cautiously hopeful that slowing inflation may prevent the Fed from raising its benchmark interest rate target range above the 5.1% peak forecast last month.
This would result in only a sharp slowdown in growth, rather than an economic contraction.
News on inflation continues to be encouraging,A third report from the Labor Department showed that the producer price index (PPI) for final demand fell 0.5% in December after rising 0.2% in November. In the 12 months through December, PPI rose 6.2 percent after climbing 7.3 percent in November.
The government reported last week that consumer prices fell in December for the first time in more than two-and-a-half years from the previous month.
Interactive Brokers senior analyst José Torres said: “The Fed is making progress in fighting inflation. Although it is not clear whether this will cause the Fed to become more dovish, it at least suggests that the Fed may not need to raise interest rates and tighten liquidity. more aggressive.”
Fed’s Beige Book: U.S. businesses pessimistic about economic growth this year
The Federal Reserve’s Beige Book on Wednesday showed some encouraging signs that U.S. inflationary pressures and labor shortages are easing, but economic activity was tepid as the central bank’s interest rate hikes weighed on growth.
Five Fed districts reported a slight or moderate increase in overall economic activity over the past few weeks, while six districts noted no change or a slight decline from the previous reporting period, and one district reported a sharp decline, the Fed said.
The Fed’s latest survey of the economy’s health is based on input from business contacts across the country. It follows a flurry of data that has fueled hopes that hyperinflation is on a sustainable downward path, wage growth has slowed and competition for labor supplies has eased.
But that is closely tied to the cost of the Fed’s actions to dampen demand in the broader economy.
“Overall, contacts generally expect little growth in the months ahead,” the Fed’s Beige Book said.
The Fed has raised interest rates at the fastest pace in 40 years over the past year to rein in stubbornly high inflation, and with action finally making progress, policymakers are growing confident they will raise policy rates to around 5% this spring stop raising interest rates.
“Overall, contacts across regions indicated that they expect the pace of price increases to slow further over the coming year,” the report states.
“While some districts noted an increase in labor supply, businesses continued to report difficulty filling job openings,” the report said.
U.S. Treasury yields fall to multi-month lows as retail sales miss expectations, BOJ keeps yield cap
U.S. 10-year Treasury yields fell to four-month lows on Wednesday after data showed U.S. retail sales fell more than expected in December and the Bank of Japan maintained a cap on bond yields, reducing investors’ desire to switch from U.S. Treasuries into Japanese bonds worry.
David Petrosinelli, senior trader at InspereX in New York, said the data were “integral to going from the Fed lagging behind to the fact that the Fed is now aggressively tightening rates … towards the end of the process.”
Traders of fed funds futures are now pricing in the Fed’s benchmark rate hitting as high as 4.87% in June, down from 4.90% before Wednesday’s data, before dropping to 4.34% in December. The federal funds rate is currently at 4.33%.
Traders were pricing in rates below signals from Fed officials as they questioned whether the central bank would keep raising rates or keep them at restrictive levels if the economy suffers.
The decline in retail sales fits with a trend of consumers spreading out their holiday purchases over several months, Petrosinelli said.
But January’s data will be key to confirm whether December’s decline was holiday-related or a problem with consumer spending. “That’s the real question this year — will consumers shift, will private consumption shift,” Petrosinelli said.
The yield on the 10-year U.S. Treasury note fell to 3.375% late on Wednesday, its lowest close since Sept. 13.The two-year yield hit 4.072%, the lowest since Oct. 4.
Fed policymakers call for rate hike above 5% despite data showing slowing inflation
Fed policymakers on Wednesday reiterated their support for raising the target interest rate above 5 percent despite signs of cooling inflation and the central bank’s own survey showing economic activity is slowing across swathes of the United States.
“We’re not at 5%, we’re not over 5%, and given my forecasts for the economy, I think that’s going to be necessary,” he said.“I just think we need to go ahead and we’re going to talk at the meeting about how much to add,” Cleveland Fed President Loretta Mester said in an interview. She declined to say how much action she would prefer at an upcoming policy meeting.
The Fed’s benchmark overnight lending rate is currently in a range of 4.25% to 4.50%.
The latest economic data has fueled expectations that the Fed will end its current round of rate hikes with a policy rate just below 5%.
“We’re starting to see the kind of trends that we need to see,” Mester added. “There are good signs that things are going in the right direction … that’s an important message for us to think about where policy is headed.” .”
but,She added that the Fed’s policy rate may ultimately need to be “slightly higher” than the 5.00%-5.25% most of her colleagues expect, and stay there for a while, to push inflation further.
St. Louis Fed President Bullard said in an interview that as of December, he expects the policy rate range will need to rise to 5.25%-5.50%,It added that policymakers should raise the policy rate above 5% “as soon as possible”.
Several policymakers expressed support for a slower pace of rate hikes to 25 basis points to prevent the labor market from slowing more than necessary.
But Brad was even more impatient. Asked if he was open to another 50 basis point rate hike at the Fed’s upcoming meeting, Bullard replied: “Why don’t we get where we need to be…why delay?”
Harker, the chairman of the Philadelphia Fed, wants to shift to 25 basis points of interest rate hikes in the future, but he also believes that it will take “a few more rate hikes” before pausing. He’s generally less hawkish than Meester or Brad.
Dallas Fed’s Logan backs slower pace of rate hikes, but suggests rate peaks could be higher
Dallas Fed President Logan on Wednesday laid out the case for the Fed to slow the pace of interest rate hikes to better adjust monetary policy to an uncertain economic outlook, but she also suggested that rates could end up rising further than many currently expect.
“If you’re driving on the road and you’re in foggy weather or a dangerous stretch of road, it’s a good idea to slow down. Likewise, if you’re a policymaker facing the current complex economic and financial environment,” Logan said in a statement. said in his first major policy speech since becoming Dallas Fed president last year. “That’s why I supported (the Fed’s) decision to slow down the pace of rate hikes last month. And the same considerations mean a further slowdown at the upcoming meeting.”
She said a slower pace would not mean a lesser commitment to bringing inflation down to 2 percent, and if a slower pace of rate hikes eased financial conditions by reducing uncertainty, “we could do that by gradually raising rates.” to a higher level than previously expected to offset this effect.”
With so many unknowns in 2023, she said, the Fed should not “lock in” a peak in policy rates, but should maintain flexibility through smaller rate hikes.
“My personal view is that it may be necessary for us to continue gradually raising the federal funds rate until we see compelling evidence that inflation is returning to our 2 percent objective in a sustainable and timely manner,” she said.
Annual inflation, measured by the personal consumption expenditures price index, the Fed’s preferred measure, has averaged 5.8% over the past two years.
Logan said recent data suggest these rate hikes, along with restoring supply chains, are starting to slow inflation in goods and will soon slow inflation in rent and housing costs, but services driven by an “overheated” labor market Inflation remains a problem.
“I think the most significant risk is that if we tighten too little, the economy will continue to overheat and we won’t be able to control inflation,” Logan said, while pointing to doing too much and weakening the labor market more than necessary the opposite risk.
Sources: Germany narrowly avoids recession in 2023 forecast
Germany is on track to narrowly avoid recession this year with a price-adjusted growth rate of 0.2 percent, a source said on Wednesday, citing unfinalized estimates in the government’s draft annual economic report.
According to the draft report, the government now expects inflation to be 6.0 percent in 2023, compared with an earlier forecast of 7.0 percent, the source said.
IMF Vice Chairman Gopinath: China’s economy is expected to rebound sharply from the second quarter
China could see a sharp rebound in economic growth starting in the second quarter, based on current infection trends, after most of the coronavirus restrictions are lifted, International Monetary Fund (IMF) First Deputy Chairman Gita Gopinath said on Wednesday.
In an interview with Reuters on the sidelines of the World Economic Forum in Davos, Gopinath also reiterated the IMF’s call for countries to avoid falling into protectionism.
She praised China’s reopening as a positive sign, which also shows that China is ready to re-engage with the world. “We expect growth in China to recover, to rebound.”
Economists polled by Reuters expect China’s economy to grow by about 4.9 percent in 2023, with some recently raising their growth forecast to about 5.5 percent.
Gopinath said a growth rate of “a little over 4 percent” could mean that any global inflationary pressures would be offset by slower demand elsewhere.
Asked about recent data showing that U.S. inflation has cooled, Gopinath said it was too early to determine whether the data meant a sustained pullback in inflation toward the Fed’s 2 percent target.
“If the inflation numbers in the next few months are similar to the past month or two, then we’ll be in a good place,” she said, noting that the labor market remains tight.
Gopinath reiterated the IMF’s concern that geopolitical tensions would lead countries toward protectionism as they try to shore up their economic security.
On the whole, although recent U.S. data have reflected the slowdown in U.S. inflation growth, and market expectations for the Fed to slow down the pace of interest rate hikes have further increased, the overall level of inflation in the U.S. is still high, and the labor market remains strong. Intending to continue raising interest rates to fight inflation, the market’s concerns about a global economic recession have dropped slightly, which will make gold prices, which have weakened upward momentum, face the risk of further shock adjustments or even callbacks in the short term. Below, focus on the 10-day moving average of 1893.86 and the June 13 high of 1878.65 (Short-term upward trend line support is also near this position) nearby support. At the top, pay attention to the resistance near the 5-day moving average of 1910.71.
At 10:30 Beijing time, spot gold was at $1903.21 an ounce.