TREX Global:U.S. bond yields fall to boost gold prices, focus on Fed meeting minutes and ISM manufacturing PMI

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U.S. December Markit manufacturing PMI final value hits new low since May 2020

Data on Tuesday showed that the final Markit manufacturing PMI in the United States recorded 46.2 in December, the lowest since May 2020.

Sian Jones, senior economist at IHS Markit, pointed out that as 2022 draws to a close, U.S. manufacturing is weak, with output and new orders contracting more sharply. Demand for goods fell as domestic orders and export sales fell. Weak demand conditions also led to a downward adjustment in inventories, as excess inventories accumulated earlier in the year were depleted and replaced by further spending on inputs. Purchase inventories fell at the fastest pace since 2009, excluding the early days of the pandemic.

Sian Jones said concerns about the demand outlook were weighing on hiring decisions. The job gains were modest and mostly related to hiring tech workers, as businesses acted cautiously.

Sian Jones, senior economist at IHS Markit, said lower demand for inputs and higher supplies of raw materials from suppliers contributed to further easing of inflationary pressures. In fact, input price inflation was below trend. Sales price increases have also slowed, although they are still rising sharply. A moderating rise in inflation points to the impact of Fed policy on prices, but rising uncertainty and slumping demand suggest challenges for manufacturers will extend into the new year.

U.S. Treasury yields start new year down, snapping two-week winning streak

Longer-dated U.S. Treasury yields fell on Tuesday, with the 10-year U.S. Treasury yield retreating after two weeks of gains, with the yield heading for its biggest annual gain in decades in 2022 amid concerns about the Fed's path of tightening.

According to Refinitiv data, the 10-year Treasury yield has risen by about 238 basis points in 2022, the largest annual increase since at least 1953, and the Federal Reserve accelerated at the fastest pace since the 1980s after years of easy monetary policy. interest rates to combat stubbornly high inflation.

UK manufacturing activity falls sharply in December 2022, orders shrink

British manufacturing activity slumped last month, one of the sharpest falls since the 2008-09 recession, as new orders fell sharply and businesses cut jobs, a monthly survey showed on Tuesday.

The final S&P Global/CIPS UK Manufacturing Purchasing Managers' Index (PMI) fell to 45.3 in December from 46.5 in November, the lowest since May 2009 excluding the first two months of the 2020 COVID-19 pandemic.

The reading was stronger than the preliminary reading of 44.7 released last month, but well below Monday's final December manufacturing PMI reading of 47.8 in the euro zone.

Japan's December factory activity sees biggest drop in more than two years

Japan's factory activity fell by the most in 26 months in December, a business survey showed on Wednesday, with business activity falling further amid a slowing global economy.

Japan's seasonally adjusted December Au Jibun Bank Manufacturing Purchasing Managers' Index (PMI) was 48.9, slightly lower than the final value of 49.0 in November.

Although slightly higher than the initial value of 48.8, the value is still the weakest since October 2020, and it is also the watershed below 50 for the second consecutive month.

The dollar index rose sharply on Tuesday

U.S. construction spending unexpectedly rebounded in November, and the euro fell as inflation eased. The dollar jumped 0.9 percent on Tuesday, hitting a new high of 104.86 in more than two weeks before closing at 104.68, still keeping gold bulls on their toes. The market is focused on the minutes of the Fed meeting, and investors need to focus on it.

Scotiabank noted that the dollar is usually relatively strong in January.

ShAun Osborne, chief currency strategist at Scotiabank, said in a note: "The dollar's strong start to the new year is very much in line with the long-term (and short-term) seasonal trend of usually rebounding in January, and over the past quarter century or so, 1 July is the strongest month of the year for the dollar."

Recent near-term weakness in the dollar may also be overdone, he added.

Focus on the minutes of the Fed's December monetary policy meeting

The Federal Reserve will release the minutes of its December meeting at 3 a.m. Beijing time on Thursday (January 5). The Fed slowed the pace of rate hikes in December, but raised the median terminal rate target by 50 basis points to 5.1%, stoking fears of overtightening and a recession. Fed officials have spoken less since their last meeting, so the minutes may offer some fresh insight into policymakers' confidence in a sharp drop in inflation, as well as an updated view on recession.

TREX Global’s view:The market's expectations for the U.S. December ISM manufacturing PMI data, the Federal Reserve meeting minutes and the U.S. December non-agricultural employment report are generally bullish for gold prices, and the technical bullish signal for gold prices has also strengthened. Before falling below the 5-day moving average of 1825.33 , Gold prices tend to fluctuate upward in the market outlook. The initial resistance is around the June 16 high of 1857.39, and the strong resistance is around the June 13 high of 1878.65.

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