1. Market review: On Thursday, stimulated by the slowly cooling CPI data, spot gold once plummeted by nearly $14 in the short term, and then recovered quickly, breaking through the 1900 mark for the first time since May last year. The price of gold fell again during the Philadelphia Fed Chairman Harker’s speech, falling below $1,890 an ounce, but then rebounded, closing up 1.14%, at $1,896.86 an ounce. Spot silver fell first and then rose with gold, and once stood at the $24 mark Above, it finally closed up 1.58% at $23.78 an ounce.
2. The monthly CPI rate is negative for the first time (1) The monthly CPI rate in the United States recorded a seasonally adjusted -0.1% in December, the first negative value recorded since May 2020;
(2) The annual rate of CPI without seasonal adjustment was recorded at 6.5%, and the annual rate of core CPI without seasonal adjustment was recorded at 5.7%;
(3) Traders are betting less than 50 basis points on the combined rate hikes at the Fed’s February and March meetings; (4) Interest rate futures markets are implying a nearly 100-basis-point chance of a Fed hike of 25 basis points in February %.
3. The 10-year U.S. bond yield fell to a recent low of 3.444%. The inversion of the interest rate spread between the U.S. 2-year and 10-year Treasury yield curves once widened to 71.70 basis points during the session.
4. The three-month US dollar London Interbank Offered Rate (LIBOR) exceeded the high point of the 2008 financial crisis.
5. Fed officials talk about the future policy path (1) Philadelphia Fed Chairman Harker: The Fed may raise interest rates several times in 2023. The era of super-scale interest rate hikes has passed, and it is time to adjust the future interest rate hikes to 25 basis points . Core inflation could fall to 3.5% in 2023 and hit the Fed’s 2% target in 2025. The Fed is expected to raise rates to just above 5% before leaving them unchanged.
(2) St. Louis Fed President Bullard: Inflation is still well above the Fed’s target, but it is slowing down, and it is inclined to raise interest rates above 5% as soon as possible.
(3) Barkin, chairman of the Richmond Fed: tends to slow down the pace of interest rate hikes, and the terminal interest rate may be higher.
6. The number of initial jobless claims fell slightly. As of the week of January 7, the number of initial jobless claims fell from 206,000 to 205,000, which was lower than the annual average in 2019. Indicates that the U.S. labor market remains tight despite companies laying off or planning layoffs.
7. Georgieva, president of the International Monetary Fund (IMF), said that the IMF is not expected to lower its forecast for global economic growth of 2.7% in 2023, pointing out that concerns about rising oil prices have not materialized and the job market Still going strong. There is more and more evidence that the United States can avoid a recession in 2023 and achieve a “soft landing”.
8. On the third anniversary of the killing of senior Iranian general Soleimani in Baghdad by the US military, the Iraqi judiciary issued an arrest warrant on the 6th for US President Trump who ordered the attack on Soleimani.
Expectations of a 50 basis point rate hike remain underpinned
As early as a few days ago, the market’s expectations for the US CPI data were very optimistic. Data released last night was well in line with expectations, which means some of the optimism in equities and fixed income may dissipate. Although the Fed may raise interest rates by 25 basis points at the next meeting, the strong performance of housing in the core CPI and the modest increase in initial jobless claims also support the possibility of the Fed raising interest rates by 50 basis points at the next meeting. What matters most to markets, though, is the Fed’s terminal rate, not the pace of rate hikes. As the Fed moves closer to terminal rates, its pace of rate hikes needs to slow down.
Inflation is collapsing at an accelerating pace
The U.S. December CPI shows that inflation is still cooling and will gradually reach the Fed’s target over time. The Fed has reason to raise interest rates by 25 basis points from now on. The current housing inflation remains strong, but the strength of housing inflation will slow after the second quarter of this year as house prices begin to fall in the second half of 2022 and rents peak nationwide. We think inflation will moderate more notably in the second quarter due to weaker pricing power in housing, autos, health care, and businesses. The collapse in inflation is accelerating as economic worries mount, with interest rates peaking at 5%, but a recession seems inevitable with meaningful rate cuts in the second half of the year, possibly as much as 100 basis points.
Gold’s uptrend could be very short-lived and the precious metal is ripe for a pullback. Gold has now broken resistance near 1875, and may continue to stand on the 61.8% retracement of the downtrend to 2022, and break through 1900, before the sell-off triggers a pullback. This round of pullback in gold may fall to 1825-1850, but the intensification of short-term selling pressure may cause gold to fall to the 38.2% retracement of the upward trend of the past few months, around 1793. The RSI at the daily level shows signs of overbought, but with the support of the RSI above 60 and the continued expansion of the Bollinger Bands, the medium-term trend of gold is still bullish. All the moving averages are rising, which also highlights the medium-term bullishness. It reached 1970-2000 in the second quarter.
Gold is still maintaining an upward trend. After we tracked the positions of + large traders in China, we found that they are still increasing their holdings of gold. In addition, the threshold for triggering CTA buying after the gold price rises is not high, and we still haven’t seen signs of buying weakening. After the new year, we may continue to see the market still continue to buy gold, which will help us dig The reason for the large-scale buying. Gold is likely to be overbought, but its price action and underlying drivers suggest it may be too early to end the rally.