Fundamentals are mainly bullish
[U.S. consumer prices fell for the first time in more than two and a half years in December]
U.S. consumer prices fell in December for the first time in more than two-and-a-half years, as gasoline and motor vehicle prices retreated, offering hope that inflation is now on a sustained downward path even though the labor market remains tight.
Price pressures on Americans shopping at supermarkets also eased further in December, with a report from the Labor Department on Thursday showing the smallest monthly increase in food prices since March 2021. But rents are still high, and utility bills are up.
Cooling inflation could see the Fed further scale back its pace of rate hikes next month. The Federal Reserve is in the midst of its fastest rate hikes since the 1980s.
[U.S. inflation slows, the dollar plummets to a new low in more than seven months]
In the early Asian market on Friday (January 13), the U.S. dollar index continued its decline on Thursday, hitting a new low since June 6 to 102.06, extending the delay. The U.S. dollar index fell nearly 1% on Thursday to a near seven-month low of 102.07 as data showed that U.S. inflation is slowing, prompting bets that the Federal Reserve will raise interest rates less aggressively in the future.
[U.S. bond yields fell to a new low in nearly four weeks]
U.S. Treasury yields fell in choppy trade on Thursday, dragged down by inflation data, with U.S. 10-year and 30-year yields falling to four-week lows.
The two-year/10-year spread, a closely watched part of the U.S. Treasury yield curve, narrowed its inversion to minus 68.5 basis points from earlier in the session. The yield spread hit negative 85.80 basis points at one point after the inflation data, the worst inversion in four weeks.
The narrowing of the inversion of the curve suggests that investors are pricing in fewer Fed rate hikes.
The fundamentals are mainly negative
[The U.S. labor market remains tight]
The labor market remains tight, with the unemployment rate returning to a five-year low of 3.5 percent in December, compared with 1.7 job vacancies for every unemployed person in November.
Initial claims for state unemployment benefits fell by 1,000 to a seasonally adjusted 205,000 for the week ended Jan. 7, the Labor Department reported on Thursday.
Economists had forecast 215,000 applications in the latest week. Applications have remained low despite mass layoffs in the tech sector, as well as in rate-sensitive sectors such as finance and real estate.
Economists say companies are now reluctant to lay off workers after suffering hiring woes during the pandemic. Continuing claims, a barometer of hiring, fell by 63,000 to 1.634 million in the week ended Dec. 31, the data showed.
The government reported last week that the economy created 223,000 jobs in December, more than double the 100,000 jobs the Fed wants to see confident inflation is cooling.
[Fed policymakers hinted that they will further slow down the pace of interest rate hikes, but the anti-inflation stance has not changed]
Fed policymakers on Thursday expressed relief that price pressures were easing, opening the door to a quarter-point rate hike at the central bank's meeting in less than three weeks.
Richmond Fed President Barkin said: "We are actually containing the economy and may be in the process of suppressing inflation. I think this means that I can be more delicate in responding." He also said that according to the performance of inflation , he "would, in concept, support a slower but longer path with potentially higher terminal rates". The Fed raised interest rates by 50 basis points at its December meeting.
[IMF Chairman Georgieva: The United States may be able to avoid economic recession in 2023 and achieve a "soft landing"]
International Monetary Fund (IMF) chief Kristalina Georgieva said on Thursday there was growing evidence that the U.S. could avoid a recession in 2023 and achieve a "soft landing."
Georgieva told reporters that despite U.S. interest rates being raised to fight inflation, the labor market remained resilient and consumer demand remained strong. She said there had been a healthy shift from excess purchases of goods to demand for services, and that the sources of economic growth had become more diverse.
[IMF Chairman: It is not expected to lower the forecast for global economic growth of 2.7% in 2023]
International Monetary Fund (IMF) chief Georgieva said on Thursday that the IMF is not expected to cut its forecast for global economic growth of 2.7% in 2023, citing concerns over soaring oil prices that have failed to materialize.
Georgieva said 2023 will remain a "difficult year" for the global economy with inflation remaining high, but she doesn't expect a series of downgrades to economic forecasts like last year, barring unforeseen circumstances .
TREX Global’s view:Although Fed officials’ emphasis on anti-inflation departure and the possibility of maintaining a higher interest rate level for a long time has suppressed the rise in gold prices, and concerns about the U.S. economic recession have eased, the market is still optimistic that the Fed will relax The lingering expectation of a slow rate hike and a rate cut at the end of the year is expected to provide opportunities for further volatility in gold prices.
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