Bulls bank on Japan inflation cooling further

Jan 19 – The number one focus for investors in Asia on Friday will be the latest Japanese consumer inflation figures, with markets across the region hoping to draw support from the strong rise on world markets the day before and end a torrid week on a high.

The MSCI Asia Pacific ex-Japan index is down 3.7% this week, on track for its biggest weekly loss since August. After jumping 6.6% higher last week for its best performance in nearly two years, Japan’s Nikkei is also in the red.

But only just. A soft inflation number that raises more questions about the Bank of Japan’s policy normalization and eventual move toward positive interest rates could be the catalyst for a Friday buying frenzy.

Japan’s annual headline rate of inflation crossed above the BOJ’s 2% target in April 2022 and has been there ever since. The retreat from its 4.3% peak a year ago has been slow, and in November it had eased to 2.8%.

A sizeable decline in December would add to the weight of evidence that price pressures are lifting. This has prompted many investors and analysts to question how quickly the BOJ will normalize policy and lift interest rates into positive territory.

Economists expect annual core inflation to cool to 2.3% from 2.5%, which would be the lowest since June 2022.

Weaker-than-expected machinery orders and recent dovish comments from BOJ Governor Kazuo Ueda have pushed the yen back down toward the 150.00 per dollar level. It is down 5% so far this month, on for its biggest monthly slide since June 2022.

None of the 29 economists in a Jan. 9-16 Reuters poll expect the BOJ to raise its short-term deposit rate of minus 0.1% at its policy meeting next week. That is down from 14%, or four of 28 economists, who expected a change in a December survey.

More broadly, risk assets rebounded on Thursday after days of being beaten down, as the recent surge in global bond yields slowed down dramatically and a renewed bout of optimism around AI boosted tech stocks.

US-listed shares of Taiwan Semiconductor Manufacturing (TSMC) were among the biggest winners on Wall Street, jumping 8% after the world’s largest contract semiconductor maker projected 2024 revenue growth of more than 20%.

The yuan also goes into the last trading day of the week on the defensive, at a two-month low against the dollar, but a weakening domestic currency is not having the positive impact on Chinese stocks like it is in Japan.

Here are key developments that could provide more direction to markets on Friday:

– Japan inflation (December)

– New Zealand PMI (December)

– Malaysia trade (December)

(By Jamie McGeever; Editing by Bill Berkrot)

S&P 500 ends near record high as AI optimism lifts chipmakers

Jan 18 – US stocks ended sharply up on Thursday, with the S&P 500 approaching record highs as AI optimism drove gains in Nvidia and other chipmakers.

US-listed shares of Taiwan Semiconductor Manufacturing (TSMC) soared nearly 10% after the world’s largest contract semiconductor maker projected 2024 revenue growth of more than 20% on booming demand for high-end chips used in artificial-intelligence applications.

Heavyweight chipmaker Nvidia rose 1.9% to a record high, and it was the most-traded company on Wall Street, with almost USD 28 billion worth of shares exchanged. Rival Advanced Micro Devices rose 1.6% and also notched a record high.

Broadcom, Qualcomm, and Marvell Technology gained more than 3% each. The Philadelphia SE semiconductor index rallied 3.4% and approached its December 2023 record high.

“AI has caused this industry to have a ‘rip your face off’ rally, and I don’t think it’s stopping anytime soon,” said Jake Dollarhide, CEO of Longbow Asset Management.

Apple jumped 3.3% after BofA Global Research upgraded the iPhone maker’s stock to “buy” from “neutral.” That helped the S&P 500 information technology index rise 2% and hit a record high.

The S&P 500 climbed 0.88% to end the session at 4,780.94 points. The benchmark is down just 0.3% from its record-high close in January 2022.

The Nasdaq gained 1.35% to 15,055.65 points, while the Dow Jones Industrial Average rose 0.54% to 37,468.61 points.

Data showed the number of Americans filing new claims for unemployment benefits fell last week to a late-2022 low, suggesting solid job growth in January.

Wall Street has wavered in recent sessions as investors became less sure the Federal Reserve will begin cutting interest rates in March.

The S&P 500 lost ground on Tuesday and Wednesday following strong December retail sales data and after policymakers talked down expectations for an early start to rate cuts.

Traders now see a 56% chance for a 25-basis-point rate cut in March, compared with a chance above 80% a month ago, according to the CME Group’s FedWatch Tool.

Interest rate-sensitive sectors dipped, with the S&P 500 real estate index down 0.6% and utilities index losing 1.05%.

Atlanta Federal Reserve President Raphael Bostic said he was open to reducing rates sooner than he had anticipated if there is “convincing” evidence in coming months that inflation is falling faster than he expected. Bostic had previously said he expected it would be appropriate to cut rates in the second half of 2024.

Humana dropped 8% after the health insurer forecast fourth-quarter medical costs to be higher than previously expected. Peer UnitedHealth fell 1.6%.

KeyCorp dropped 4.6% after the lender posted a decline in fourth-quarter profit, while Birkenstock sank about 8% after missing quarterly profit expectations.

Spirit Airlines ended down more than 7% after news it is looking at options to refinance its debt and is not considering restructuring.

Advancing issues outnumbered falling ones within the S&P 500 by a two-to-one ratio.

The S&P 500 posted 30 new highs and seven new lows; the Nasdaq recorded 56 new highs and 180 new lows.

Volume on US exchanges was relatively heavy, with 11.8 billion shares traded, compared with an average of 11.5 billion shares over the previous 20 sessions.

(Reporting by Noel Randewich in Oakland, California; Additional reporting by Johann M Cherian and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta and Matthew Lewis)

US bonds keep bearish tone after strong jobs data

NEW YORK, Jan 18 – US Treasury yields inched higher on Thursday after data showing job growth remains solid, which strengthened the argument of central bank officials in recent days that they will not rush to lower interest rates.

Yields, which move inversely to prices, had declined overnight partly because of a flight to safety to US Treasuries amid fears of an escalation of the conflict in the Middle East after Pakistan fired a retaliatory strike at Iran.

But the bearish bias that characterized the bond market this week took hold again after the Labor Department said on Thursday that the number of Americans filing new claims for unemployment benefits fell last week to the lowest level since late 2022, suggesting job growth likely remained solid in January.

The data followed a series of economic indicators in recent days pointing to resilience in the economy despite interest rates remaining at their highest level in decades, suggesting the Federal Reserve may not move toward less restrictive monetary conditions as fast as the market expected.

“This certainly supports the view that maybe (rate cuts) will not be in March and maybe it will be in June,” said Thomas Hayes, chairman and managing member of New York-based Great Hill Capital. “But, in the grand scheme of things, inflation is dropping like a rock and they will be cutting this year. The question is how many.”

Short-term rate futures markets on Thursday were still signaling consensus around a first rate cut in March, even though that had a 55% probability, down from 70% last week. Meanwhile, the probability of a first rate cut in May was at 46%, up from 30% last week, according to CME Group data.

“The March rate cut odds are slipping through the fingers of the market … time is ticking right now and the data has been really strong,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

Atlanta Federal Reserve President Raphael Bostic said on Thursday he was open to lower rates sooner than he had anticipated, depending on how quickly inflation falls, but that the baseline was for rate cuts to start in the third quarter.

Benchmark 10-year yields gained 4 basis points from Wednesday to 4.144%, and yields were also higher for other medium- to long-term maturities. Two-year yields were unchanged at 4.356% after jumping on Wednesday.

The curve comparing two- and 10-year yields, which when inverted is generally seen as a harbinger of recession, steepened slightly to minus 21.7 basis points. Still, earlier this week the yield spread between the two maturities went to about minus 16 basis points – the smallest inversion of that part of the curve since November.

On the supply side, the Treasury department saw strong demand for an USD 18 billion 10-year Treasury Inflation-Protected Securities (TIPS) auction. The notes were sold at a high yield of 1.81%, more than 2 basis points below the expected rate at the time of the bid deadline, a sign that investors did not demand a premium to absorb the issuance.

The bid-to-cover ratio, a measure of demand, was 2.62, above a one-year average of 2.44. Indirect bidders took down 79% of supply, compared with a one-year average of 76%.

Post-auction, US 10-year real yields declined to 1.804%. The breakeven rate – a proxy of inflation expectations over the next 10 years – stood at 2.34%, up from 2.174% at the end of last year.

(Reporting by Davide Barbuscia; Editing by Bernadette Baum and Jonathan Oatis)

Dollar gains for fifth straight session on solid labor data

NEW YORK, Jan 18 – The dollar index climbed for a fifth straight session on Thursday after labor market data showed job growth, keeping expectations for an interest rate cut from the Federal Reserve in check.

Initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 187,000 for the week ended Jan. 13, the lowest level since September 2022, the Labor Department said on Thursday, short of the 207,000 expectation of economists polled by Reuters.

The data followed a stronger-than-expected retail sales report on Wednesday.

“The market’s doing what it loves to do and squeeze people out of crowded positioning. Ever since the start of the year, everything sort of flipped,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull in Toronto.

“You’ve had central bankers now push back on 2024 rate cut pricing, and I’d say on balance, economic data has been better than expected.”

The US dollar index =USD, which measures the currency against a basket of six peers, was up 0.14% at 103.47, after reaching 103.69 on Wednesday, its highest since Dec. 13. It was on track for its fifth straight session of gains, its longest streak since August.

Expectations for a cut from the Fed in March of at least 25 basis points (bps) are currently at 57.1%, according to CME’s FedWatch Tool, compared with 55.5% in the prior session and a decline from the 73.2% a week ago.

A separate report from the US Commerce Department showed single-family homebuilding took a breather in December after a recent stretch of gains. New construction remains underpinned by a shortage of previously owned houses for sale.

Fed officials, including Governor Christopher Waller this week, have pushed back against expectations of an aggressive round of rate cuts, suggesting the speed and timing will be slower than market participants had initially priced in.

Atlanta Federal Reserve President Raphael Bostic said on Thursday he was open to reducing US interest rates sooner than the third quarter he had anticipated if there was “convincing” evidence in coming months that inflation is falling faster than he expected.

The dollar was roughly even against the yen at 148.14 on Wednesday after rising to 148.52 on Wednesday, its strongest since Nov. 28.

The Bank of Japan (BOJ) is scheduled to hold a policy meeting next Monday and Tuesday, and is likely to maintain its ultra-loose monetary settings.

The euro was down 0.14% at USD 1.0866 after accounts from the European Central Bank’s December meeting showed policymakers appeared fairly confident that inflation was heading back to target, but saw risks that still warranted steady policy and high borrowing costs.

Sterling was up 0.17% at USD 1.269 GBP=, building on gains from the prior session when data showed inflation unexpectedly accelerated in December, buttressing expectations the Bank of England will be slower to cut rates than its peers.

In cryptocurrencies, bitcoin fell 3.09% to USD 41,318.00.

(Reporting by Chuck Mikolajczak; editing by Barbara Lewis and Jonathan Oatis)

Gold drifts higher as Middle East tension attracts safe-haven inflows

Jan 18 – Gold prices firmed on Thursday, aided by safe-haven demand amid the Middle East conflict, while investors looked out for further clarity on the US Federal Reserve’s future interest rate path.

Spot gold rose 0.7% to USD 2,019.12 per ounce by 02:06 p.m. ET (1906 GMT) after hitting a five-week low in the previous session.

US gold futures settled 0.8% higher at USD 2021.6.

Geopolitical tensions are unintentionally coordinating efforts to keep gold in the USD 2,000 range as there is so much uncertainty, said Daniel Pavilonis, senior market strategist at RJO Futures.

The US on Wednesday put the Yemen-based Houthi rebels back on its list of terrorist groups, as the militants attacked their second US-operated vessel in the Red Sea region this week.

Atlanta Federal Reserve President Raphael Bostic said on Thursday that he was open to reducing US interest rates sooner if there is “convincing” evidence in coming months that inflation is falling faster than he expected.

Traders are pricing in a 57% chance of a March rate cut, according to CME’s Fed Watch tool.

Gold investors are analysing how much of a negative impact delayed interest rate cuts might have on prices, though a bunch of US data misses could help gold’s cause, said Fawad Razaqzada, market analyst at City Index, in a note.

Data showed jobless claims fell last week to the lowest level since late 2022, suggesting job growth likely remained solid in January.

Spot silver was up 0.9% at USD 22.74 per ounce.

“We forecast a 2024 price of USD 24.33/oz; ETF (exchange traded funds) demand may recover from liquidation; we anticipate deficits to buoy prices,” HSBC said in its 2024 outlook.

Platinum climbed 2.4% to USD 904.74, and palladium gained 2.7% to USD 940.28.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Tasim Zahid, Shailesh Kuber, and Shweta Agarwal)

Oil prices settle higher global demand forecasts, US crude stock draw

Jan 18 – Oil prices settled higher on Thursday after the International Energy Agency (IEA) joined producer group OPEC in forecasting strong growth in global oil demand and as cold winter weather disrupted US crude output while the government reported a big weekly draw in crude inventories.

Oil traders also worried about geopolitical risks in the Middle East. Pakistan conducted strikes inside Iran, targeting Baluchi separatist militants, the country’s foreign ministry said, two days after Iranian strikes inside Pakistani territory.

Brent crude futures settled up USD 1.22, or 1.6%, to USD 79.10 a barrel, while US West Texas Intermediate crude futures settled up USD 1.52, or 2%, USD 74.08.

The US Energy Information Administration reported a larger-than-expected draw in crude inventories of 2.5 million barrels in the week ended Jan. 12.

“The fear of another large build of total inventories has not materialized, modestly supporting prices,” said Giovanni Staunovo, analyst at UBS.

The IEA monthly report said it expects oil demand to grow by 1.24 million barrels per day (bpd) in 2024, up 180,000 bpd from its previous projection.

On Wednesday, the Organization of the Petroleum Producing Countries (OPEC) said it expected demand growth of 2.25 million bpd this year, unchanged from its forecast in December. The producer group also said oil demand is expected to rise by a robust 1.85 million bpd in 2025 to 106.21 million bpd.

The IEA’s executive director, Fatih Birol, told the Reuters Global Markets Forum he expects oil markets to be “comfortable and balanced” this year despite Middle East tensions, rising supply and slowing demand growth.

In the United States, about 40% of oil output in North Dakota’s oil output remained shut-in due to extreme cold weather and operational challenges, the top oil-producing state’s pipeline authority said on Wednesday.

Last week, the United States produced another record of 13.3 million barrels per day of crude oil, the EIA data showed.

Oil’s range-bound trading in recent days reinforces the narrative that investors are shrugging off concern that tankers may be at risk from attacks in the Red Sea, said Ehsan Khoman, analyst at bank MUFG.

Oil tankers that had diverted away from the Red Sea have turned back and passed through the Bab al-Mandab Strait, ship-tracking data shows, though tensions in the region continued to disrupt global shipping and trade.

“The turmoil in the Mideast has kicked up freight and insurance rates appreciably but (has) not yet affected total global oil supply other than delaying shipments toward Europe and other regions,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

Attacks by Yemen-based Houthi militants against ships in the Red Sea have forced many companies to divert cargoes around Africa, adding to journey times and costs. The United States on Wednesday conducted another round of strikes against Houthi targets in Yemen in retaliation for the attacks on shipping.

The Iran-aligned Houthis have said they are acting in solidarity with Palestinians during Israel’s Gaza war.

(Reporting by Laura Sanicola, Additional reporting by Ahmad Ghaddar in London and Jeslyn Lerh in Singapore; Editing by David Goodman, Will Dunham, and David Gregorio)

Weak data, limited stimulus keep investors away from China

SINGAPORE, Jan 17 – China’s patchy economic growth and a renewed slump in home sales have redoubled investors’ resolve to steer clear of the country’s markets, sending shares tumbling as foreigners quit in the absence of fresh policy support.

Gross domestic product growth was 5.2% for 2023, hitting Beijing’s target and market expectations. But December data also published on Wednesday showed the fastest fall in home prices for nine years, an 8.5% annual slide in sales by floor area and a collapse in housing starts.

Global money managers — who have been sellers of Chinese stocks as the post-pandemic recovery has sputtered — say it will take a long time or a lot of stimulus to repair a sector once accounting for a quarter of the economy, and change their minds.

Foreigners have already sold a net 12.4 billion yuan (USD 1.7 billion) of Chinese shares this year via the trading link with Hong Kong and more followed on Wednesday with China’s blue-chip index down more than 2% to a five-year low.

Hong Kong’s Hang Seng slid toward its largest single-day loss in 15 months after the China data, dropping 4% to its lowest in more than a year.

The price-to-earnings ratio of the index, a widely-used valuation measure, is a paltry 7 and its lowest in at least a decade, compared with 22.2 for the S&P 500.

“Today’s data follows a consistent trend in the recent few months,” said Ken Peng, head of investment strategy in Asia at Citi Global Wealth, at an outlook briefing in Singapore.

Retail sales missed market forecasts and fixed-asset investment topped them, he said, but government efforts at supporting innovation and manufacturing are not yet enough to offset the drag from a deepening slide in real estate.

“The Beijing government seems to think that the market and economy have not gotten to a point that’s bad enough to warrant a kitchen-sink policy response,” Peng said. “It’s the timing and policy response uncertainty that bothers a lot of investors.”

NARRATIVE TRAP

Performance has also been dismal, with mainland shares lagging global stocks for three years, and surging markets in India, the US and Japan offer reason to leave.

Intense focus has fallen on some sort of demand stimulus – however unlikely – as the trigger to draw investors back.

Sid Mathur, head of Asia macro strategy and emerging market research at BNP Paribas, calls it a “narrative trap” that’s grown after Chinese policymakers doled out large and targeted fiscal stimulus during downturns in the past few decades.

It’s different now, he says, with the stimulus of a lower magnitude and aimed “much more to contain downside risks to long-term growth than to maximize short-term growth”.

Economists have noted, too, that infrastructure spending and targeted support for green or high-tech manufacturers fail to confront the confidence crisis that’s been unleashed by the collapse in home prices.

“It’s true Chinese authorities have rolled out stimulus measures to prop up the economy, but the effects have hardly played out … because the same old infrastructure spending has been overdone in the past two decades,” said Toru Nishihama, chief economist at Dai-Ichi Life Research Institute in Tokyo.

To be sure, the depth of negativity around China suggests some kind of bounce is due and technical indicators show stock markets in over-sold territory. China’s bond market has also been rallying and drawing foreign investment.

But sentiment is so fragile that sustained recovery or the return of long-term, long-only investors seems distant.

“Pessimism in China is all but entrenched now,” Bank of America analysts noted in a survey of 256 Asia fund managers published on Tuesday, with almost 70% of respondents either in wait-and-see mode or looking elsewhere.

(USD 1 = 7.1965 Chinese yuan)

(Additional reporting by Tetsushi Kajimoto in Tokyo and Vidya Ranganathan in Singapore; Editing by Kim Coghill)

Nominal China GDP? Not pretty

Jan 18 – Asian markets look set for another torrid session on Thursday, with investors still reeling from the China-fueled weakness and strong rise in global bond yields the previous day.

Highlights on the regional economic calendar will likely be Japanese machinery orders, New Zealand manufacturing PMI, Australian unemployment, and possibly the latest snapshot of Chinese foreign direct investment.

Of all those indicators, China’s FDI would be the most significant, especially in light of the ‘data dump’ from Beijing on Wednesday and the distinctly lukewarm reaction in Chinese asset markets that followed.

The economic numbers for December were mixed – industrial production was a beat, retail sales a miss – and the official GDP figures showed that the economy grew 5.2% last year.

But that’s ‘real’ growth. Strip out deflation, and nominal growth was just 4.2%, according to Deutsche Bank’s Jim Reid. Excluding the pandemic-hit growth of 2.7% in 2020, it is the lowest annual number since 1976, the year of Chairman Mao Zedong’s death.

As Reid notes, nominal GDP is important to debt ratios, property markets, and earnings. “So this would help explain the continued weakness in Chinese equities and property markets.”

China’s CSI 300 index slumped more than 2% on Wednesday, its biggest fall since August. Markets across the region also fell – the MSCI Asia Pacific ex-Japan index had its worst day in six months and is now down almost 4% over the last two days, its biggest two-day slump since October 2022.

China bulls seeking solace in the long-term outlook would not have welcomed the latest population figures from Beijing on Wednesday either. The birth rate fell to a record low last year and the population dropped by 2.08 million to 1.409 billion.

This was the second annual decline, following the 850,000 in 2022, the first since 1961 during the Great Famine of the Mao Zedong era. A falling population is a headwind to long-term potential growth.

More broadly, global markets this week are on the defensive, pounded by the sharp rise in bond yields as traders rein in some of the extreme dovishness priced into the 2024 interest rate outlook.

Whether driven by surprisingly strong economic activity, as is the case in the US, or surprisingly high inflation, as shown in Canada and Britain, bond yields are rising and rate cut expectations are ebbing.

Emerging market stocks are having their worst start to a calendar year since 2016, and the yawning performance gap between emerging Asia and the rest of the world in recent years appears to be only widening.

Even the bulled-up Nikkei is feeling the strain. It fell on Wednesday for a second day, although it was probably only a matter of time before a wave of profit-taking crashed in.

Here are key developments that could provide more direction to markets on Thursday:

– Japan machinery orders (November)

– Australia unemployment (December)

– China FDI (December)

(By Jamie McGeever)

US yields rise as economic data dents rate cut expectations

NEW YORK, Jan 17 – US Treasury yields climbed on Wednesday after an unexpected rise in UK inflation last month and stronger-than-expected US December retail sales data strengthened the case that interest rate cuts will not be as imminent as the market expects.

The UK inflation print, as well as more push-back from European Central Bank officials on Wednesday against interest rate cut bets, pushed European bond yields higher.

Treasury yields, which move inversely to prices, followed suit, with the uptick gaining momentum after Commerce Department data showing retail sales in December grew by 0.6% month on month, above the 0.4% economists had expected in a Reuters poll.

Weak demand for a 20-year bond auction also helped lift yields later on Wednesday.

“December retail sales reflect an economy that, although slowing, continues to be underpinned by consumer spending,” said Quincy Krosby, chief global strategist for LPL Financial.

“For the Federal Reserve, slower consumer demand would help propel inflation to decelerate at a faster pace; however, with consumer confidence gaining momentum, the economic landscape remains on solid ground,” she said in a note.

The short-end of the yield curve, more closely linked to monetary policy expectations, led the move higher.

Two-year yields rose about 13 basis points to 4.354%, their biggest daily increase in over a month. Benchmark 10-year yields added about four basis points to 4.104%, their highest since Dec. 13.

In the short-term rate futures market, traders dialed back expectations of a Federal Reserve interest rate cut in March, which on Wednesday was seen as having a nearly 54% probability, against 63% a day earlier, according to CME Group data.

“We are seeing relatively strong short-term US data which is convincing people to push back on Fed pricing,” said Brij Khurana, fixed-income portfolio manager at Wellington Management. “I do think there’s too much priced into the front-end of the yield curve in terms of cuts,” he said.

On the economic front, a Fed survey on Wednesday showed US economic activity saw little or no change from December through early January, with firms reporting pricing pressures were mixed and citing signs of a cooling labor market.

Separately, the Treasury saw soft demand for a USD 13 billion auction of 20-year bonds, a gauge of investors’ appetite for long-term government debt securities ahead of an expected flood of debt issuance this year.

The paper was sold at a high yield of 4.423%, about nine basis points above where it was trading before the sale, a sign that buyers demanded a premium to absorb the issuance. The bid-to-cover ratio, a measure of demand, was 2.53 – the lowest since March last year. The Treasury will sell USD 18 billion of 10-year Treasury Inflation-Protected Securities (TIPS) on Thursday.

The curve comparing two-year and 10-year Treasury yields flattened to about minus 25 basis points on Wednesday because of the sharp yield rise in two-year paper, after steepening to about minus 16 basis points on Tuesday – the least inverted it had been since early November.

The inversion of the 2/10 yield curve is closely watched by investors as it has generally preceded recessions.

(Reporting by Davide Barbuscia; Editing by Christina Fincher and Andrea Ricci)

Gold retreats to over one-month low after data dims rate-cut hopes

Jan 17 – Gold prices fell to a more than one-month low on Wednesday as strong economic data strengthened dollar and Treasury yields and lowered market expectations of a US rate cut in March.

Spot gold was down 1.2% at USD 2,003.89 per ounce as of 01:55 p.m. ET (1855 GMT), lowest since Dec.13. It fell 1.3% in the previous session in its biggest single-day decline since Dec. 4, 2023.

US gold futures settled 1.2% lower at USD 2006.5.

US retail sales increased more than expected in December, keeping the economy on solid ground heading into the new year.

The US dollar hovered at a one-month high following robust retail sales data. While yields on the benchmark US 10-year Treasury notes also gained.

“The markets are having doubts about interest rate cuts if the Fed can cut sooner than later, which is pressuring gold prices. With the dollar being strong and cuts taking time, it is hard for gold to hold a rally,” said Bob Haberkorn, senior market strategist at RJO Futures.

“However, geopolitical risk will keep providing a base to prices and hold them around USD 2,000.”

Fed Governor Christopher Waller’s on Tuesday said that the central bank should not rush to cut rates until lower inflation can be sustained.

Traders are now pricing in around a 53% chance of a rate cut in March, according to the CME FedWatch tool.

There are encouraging signs in commercial demand for silver, which may attract investors, Bank of America said in a note dated Tuesday, reinforcing its constructive view on the metal for 2024.

Spot silver fell 1.7% to USD 22.52 per ounce, and platinum declined 1.3% to USD 883.02.

Palladium slipped 2.1% to USD 916.82, marking its lowest level since 2018.

The rate at which platinum is displacing palladium in the production of autocatalysts is slowing due to the sister metals approaching price parity, analysts said.

(Reporting by Anushree Mukherjee and Ashitha Shivaprasad in Bengaluru; Editing by Tasim Zahid and Shweta Agarwal)

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