Fundamentals are mainly bullish
Fed minutes: Fed wants 'flexibility' on rate policy
All policymakers at the Fed's Dec. 13-14 policy meeting agreed that the central bank should slow down its aggressive rate hikes, allowing them to keep raising the cost of credit to keep inflation under control, but in a gradual manner to limit the impact on growth.
Minutes of the meeting released on Wednesday showed policymakers remained focused on reining in the pace of price rises, which could be faster than expected, and worried about any "misperception" by financial markets that their commitment to fighting inflation was fading.
But policymakers also acknowledged that they had made "significant progress" in raising rates to bring inflation down over the past year. As a result, the Fed now needs to balance disinflation with associated risks, including an excessive slowdown in the economy and a higher-than-necessary unemployment rate that "could put the greatest burden on the most vulnerable."
"A majority of policymakers at the meeting emphasized the need for flexibility and optionality in shifting policy toward a more restrictive stance," the record showed, suggesting policymakers may be preparing to meet on January 31-February 1. The U.S. central bank scaled back its rate hike to 25 basis points at its meeting, but is also open to a higher-than-expected "terminal" rate if high inflation persists.
U.S. manufacturing shrinks for second straight month, falls to lowest level since May 2020
A survey by the Institute for Supply Management (ISM) on Wednesday showed its gauge of manufacturers' input prices plunged in December to the lowest level since February 2016, save for April 2020, when the coronavirus slumped.
The ISM said its sub-index measuring prices paid by manufacturers fell to 39.4 from 43.0 in November. Aside from the April 2020 slump, it was the lowest reading since February 2016 and marked the index's ninth straight month of declines, reflecting weaker demand for goods, which are typically bought with loans.
Dollar weakens slightly on Wednesday
The U.S. dollar index fell 0.4% on Wednesday to close at 104.26, after the minutes of the Federal Reserve’s December meeting provided no surprises or new information on the scale of expected rate hikes in February. Job vacancies data provided support for the dollar, but the ISM manufacturing PMI data dragged down the dollar’s performance.
U.S. Treasury yields dip after Fed minutes, longest losing streak in more than five months
The U.S. 10-year Treasury yield fell 2% on Wednesday, falling for four consecutive trading days and setting a record for the longest losing streak in more than five months. It closed at 3.7089%, the lowest closing price in nearly a week and a half.
The 10-year Treasury yield fell 9.2 basis points to 3.702% on Wednesday, its biggest one-day drop since Dec. 13. The yield fell for a fourth straight session, its longest losing streak since a five-session losing streak that began on July 26.
The 30-year yield fell 7.7 basis points to 3.814% on Wednesday.
British Chamber of Commerce: The outlook for British companies in 2023 is "bleak", and most small and medium-sized enterprises face severe conditions
LONDON (Reuters) - British businesses are pessimistic about their outlook to 2023 as they face the possibility of a surge in energy bills and ongoing trade difficulties after Brexit, the British Chambers of Commerce (BCC) said on Wednesday.
The BCC's Quarterly Economic Survey shows 36 per cent of businesses expect profits to fall this year, while 34 per cent expect them to rise. The share of businesses expecting sales to increase in the next 12 months fell to 44% from 54% six months ago. The survey is the largest survey of private sector business confidence.
The fundamentals are mainly negative
U.S. job vacancies remain high
U.S. job vacancies fell less than expected in November and the labor market remains tight, which could push the Federal Reserve to raise interest rates higher than currently expected to curb inflation.
The Fed is currently in its fastest rate hike cycle since the 1980s, trying to curb demand, including for labor, to tame inflation. Last month, the Fed projected that rates could rise to a peak of 5.1%. But continued tightness in the labor market has led economists to expect borrowing costs to rise to a higher level and stay there for some time, which could dent growth.
Fed's Kashkari thinks peak target rate should be at 5.4%
Minneapolis Fed President Neel Kashkari said on Wednesday that the central bank should continue to raise interest rates at least in the next few meetings until it is certain that inflation has peaked, and he also offered his own prediction that initially it should Action was paused after the policy rate hit 5.4%.
"In my view ... it would be appropriate to continue raising rates at least for the next few meetings until we are confident that inflation has peaked," he said in an essay on the regional Fed's website , but he pointed to mounting evidence that price pressures appear to be past the worst.
Kashkari's forecast for a pause in rate hikes after reaching 5.4 percent was the more aggressive among Fed policymakers, with 15 of 19 expecting a target rate hike of 75 or 100 basis points in the coming months.
TREX Global’s view:Although the Federal Reserve has gradually slowed down the rate hike, the manufacturing PMI data has also performed poorly, dragging down the US bond yield and the dollar trend, coupled with the fear of a global economic recession and the tense geopolitical situation, providing support for gold prices, but Gold bulls will also face the test of U.S. employment data. Both the job vacancies data and the employment sub-data of the ISM manufacturing PMI suggest that the U.S. job market is still very strong, which may limit the short-term upside of gold prices. The top divergence signal continues, and investors need to beware of the risk of shock adjustment or even a fall in gold prices after a surge.
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