10/02/2023
TREX Global:U.S. bond yields regained momentum, and gold prices are at risk of a sharp drop?
U.S. jobless claims rise last week, but labor market remains tight
The number of Americans filing new claims for jobless benefits rose more than expected last week, but the underlying trend still pointed to a tight labor market.
The job market has shown resilience despite mounting economic headwinds from Fed rate hikes. While strength in the labor market keeps the Fed on the path to tightening monetary policy, it also suggests that the long-expected recession is far from coming.
Barkin: Fed can act 'more cautiously' in raising rates further
Richmond Fed President Thomas Barkin said on Thursday that tightening monetary policy is "clearly" slowing the U.S. economy, allowing the central bank to act "more cautiously" in raising interest rates further.
"I believe our foot is definitely on the brakes," Barkin said in a podcast posted on the Richmond Fed website. "It would be prudent to guide more cautiously" as the Fed examines the impact of monetary policy on the economy while watching to see if inflation continues to slow.
The new forecast will be released after the Fed's March 21-22 policy meeting.
Traders betting on Fed rate hike to 6% this week are targeting too low, research firm MacroHive says
Dominique Dwor-Frecaut, senior market strategist at research firm MacroHive, believes traders betting on the Fed raising interest rates to 6 percent this week are targeting too low.
She said the Fed would have to raise the federal funds rate to about 8% to win the battle and keep inflation under control. She came to this conclusion after analyzing data going back to 1970 with the help of a Taylor rule model.
Her predictions remain outliers, which doesn't surprise her. She originally made the forecast in March 2022, shortly after the Fed began its tightening cycle.
U.S. Treasury yields rise after 30-year bond auction
U.S. Treasury yields rose on Thursday, buoyed by weak demand at an auction of 30-year notes, the last auction of $96 billion of coupon-bearing bonds this week.
Earlier in the session, long-dated yields retreated from one-month highs after last week's jobless claims rose above expectations as investors reassessed the likely path of Fed policy following last week's unexpectedly strong jobs report.
The yield on the 30-year bond at auction was 3.686%, about 3 basis points above where it traded before the auction. The bid-to-cover ratio was 2.25 times, the lowest since December.
Demand for government debt has been mixed this week, with Wednesday's $35 billion auction of 10-year notes strong and Tuesday's $40 billion auction of three-year notes also weak.
Riksbank predicts further rate hikes, says it wants stronger currency to fight inflation
The Riksbank raised its benchmark interest rate by 50 basis points to 3 percent on Thursday and forecast further tightening in the coming months to counter headwinds from inflation and a weak currency.
The Swedish krona rose sharply after the central bank's announcement, the first rate hike under the central bank's new governor, Erik Thedeen. Many in the market were surprised that the central bank would continue to raise interest rates, which they had expected Thursday to be the last of this tightening cycle.
ECB's Nagel: Decisive action must be taken to keep inflation expectations anchored
Bundesbank President and ECB Governing Council Nagel said on Thursday that the ECB must act decisively to prevent inflation expectations from exceeding its 2% target too far, and he reiterated calls for further interest rate hikes.
TREX Global’s view:The U.S. labor market is relatively strong, and Fed officials' speeches are slightly hawkish, which raises market expectations for the Fed's terminal interest rate. U.S. bond yields strengthened, which significantly suppressed gold prices. Moreover, other central banks around the world are still raising interest rates further, the opportunity cost of holding gold is increasing, and the technical bearish signals have also increased, and the downside risks faced by short-term gold prices have increased. Of course, before the US CPI data for January is released next week, there is also some wait-and-see sentiment in the market, and geopolitical tensions may slightly limit the downside of gold prices.