Bonds, bitcoin, bullion bid as hawkish market outlook stalls

* Dollar turns lower, yen strengthens ahead of Trump inauguration

* Equities fall as markets weigh macro data, Fedspeak and earnings

* Treasury yields continue slide as rampant inflation fears subside

* Bitcoin hits $100k again even as Bessent opposes US central bank digital currency

FX: USD fell a fourth straight day after an early advance. The Fed’s Waller said if inflation moves lower, there may be more Fed rate cuts this year than the market currently anticipates. Data was mixed with modestly disappointing retail sales and rising weekly initial jobless claims. The Treasury Secretary nominee, Scott Bessent, didn’t move markets as he backed pro-growth regulatory policies.

EUR outperformed as it tried to hold above 1.03. Focus has been the mixed views of Governing Council officials with little top tier eurozone data this week. Prices are still in a long-term bear channel with 1.02 strong support below.

GBP steadied for a third day, but this could just be bearish consolidation after this year’s quite dramatic move lower. Sterling has fallen over 2% this year, easily underperforming all other major currencies. GDP disappointed yesterday and along with the softer CPI data, has seen markets nearly fully price in a quarter point cut at the BoE’s meeting in February. MPC member, Taylor, had added to dovish bets with comments about even speeding up policy easing later in the year to prevent a hard landing.

USD/JPY fell further as it broke down out of the recent range, as we highlighted yesterday. We had more reports of BoJ officials thinking about raising rates next week. That comes after Governor Ueda’s recent more hawkish noises, certainly compared to his appearance at the last meeting in December. More yen strength means we could see 154 fairly quickly, especially as the major closed on its lows for the day.

AUD lagged even though the headline jobs data was stronger than forecast. But this was largely driven by part-time roles and the jobless rate ticked higher. USD/CAD moved back into the recent range with tariff concerns front and centre.  

US stocks: Major US stock indices dipped into the close, giving back some of the stellar gains from Wednesday. That had seen the best upside move since the US election. The S&P 500 finished 0.21% lower at 5,937. The tech-heavy Nasdaq closed 0.69% lower at 21,091. The Dow settled 0.16% lower at 43,153. We note again that the Nasdaq monthly candlestick is a doji denoting indecision, which is obvious ahead of next week’s trump inauguration. Bank stocks outperformance was again notable after more strong results. Bank of America and Morgan Stanley posted better than expected results, buoyed by investment banking fees.  

Asian stocks: Futures are mixed. Indices were mostly higher after the biggest positive day on Wall Street since early November. The Nikkei 225 rose but was wary of rate hike chatter with the BoJ meeting next week The ASX 200 again financial strength, and tech following strong cyclicals Stateside. But miners lagged after Rio Tinto’s latest quarterly update. China was choppy on reports the PBoC could lower the RRR ahead of the Chinese New Year later this month. Ongoing trade frictions (we’ll be writing this a lot in the coming weeks and months…) in computing semiconductors held back stronger gains.  

Gold gained for a third straight day with a bullish breakout in play. A softer dollar and yields especially, seem to be driving demand for bullion.

Day Ahead – China data, UK Retail Sales

We get the usual mid-month data dump from China. Q4 GDP is expected at 1.7% with the annual rate at 5.1%. Retail sales are forecast at 3.5%, up from 3%. Industrial production is predicted to remain at 5.4%. Trump tariff hikes are seen weighing on growth. But countering that are the multiple stimulus (piecemeal?) measures implemented since last September. Trade-in programs have supported the consumption of durable goods like cars and home appliances. USD/CNH is trading just below the major resistance level at 7.3750.

UK retail sales for December are forecast to print at 0.3% m/m. Seasonal adjustments around the festive period make this number volatile. Other retail measures point to a somewhat lean holiday shopping season. Weak consumer confidence has likely continued after the tax-rising Budget. It seems ‘tis the season for potential “doom loop” scenarios for GBP with a general fear of stagflation, even with the softer CPI figures yesterday.  

Chart of the Day – Gold bullish breakout

We wrote recently about China’s central bank resuming its buying of bullion in the latter part of last year. The PBoC added to its gold reserves for a second month in December, which comes after a six-month pause. Notably, this took place even with gold near record highs. Is this part of a protracted policy of de-dollarisation and/or protection against any kind of future sanctions if geopolitical tensions start to escalate? Aside from that long-term theme, the softer US CPI data earlier this week has given bugs a boost. There are now roughly two Fed rate cuts priced in for 2025, the first one set to kick off in June. Markets had priced in less than one after the NPF data last Friday.

Of course, this helps non-yielding gold which is typically more attractive in a lower-rate environment. A bullish pennant looks to have formed after prices tracked sideways over the last few weeks. Key resistance now sits at the late November and mid-December highs around $2,720. A confirmed bullish breakout could see us then push up to record highs at $2,790. A false break will see bulls looking for support at $2,669 and $2,639/42.

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