Risk and gold rally extends, eyes on BoE

* USD and yields fall after Bessent’s Treasury sticks with Yellen-era long-term debt plan

* Stocks tick up again as trade war risk premium eases

* JPY rallies on strong wage growth data, possible more rate hikes

* Gold adds to record rally as physical issues and haven demand boost bugs

FX: USD traded lower again though eased up off the lows of the day in the European session. Trade war risks are being unwound, long USD positions too. But Europe is still to await its fate so there is some lingering uncertainty due to Trump’s highly unpredictable reaction function. ISM Services was weaker than expected.

EUR traded up again, to a high at 1.0442 before seeing some selling. As we said above, the region is waiting for the tariff hammer to fall on its exports to the US. Key long-term resistance/support sits at 1.0448. Above here is the y-t-d top at 1.0532. Support is 1.0363/55.

GBP popped up to near one-month highs at 1.0549 before paring gains. The relative haven appeal of the pound may endure if trade war jitters pick up. Today’s BoE meeting will bring a 25bps rate cut but is ripe for some potential dovish tweaks. See below for more commentary.  

USD/JPY broke down early on the stronger than expected wage data. Nominal wages grew at their fastest pace since 1997. That got markets thinking about a third rate BoJ hike by year end. The major has hit the 200-day SMA at 152.76. It last traded below this in mid-December.

AUD performed well on continued upside in stocks and the global picture generally, save a prolonged trade war. Resistance sits at 0.6288 and then 0.6330. USD/CAD traded down to the recent spike lows at 1.4269before buyers stepped in. The near 1.48 top on Monday is definitely a major level for the topside now. But a further, pronounced pricing out of trade war risk is needed to break decisively out of the recent range. NFP and Canada jobs data on Friday could be the catalyst.

US stocks: The benchmark S&P 500 closed in the green, up 0.39% at 6,061. The tech-dominated Nasdaq settled higher, up 0.42% at 21,658. The Dow Jones finished up 0.71% at 44,873. The Mag 7 definitely had a mixed day with Google plummeting 6.94% after its mildly disappointing results. But its increased capex spend grabbed the headlines, which could come in at $75 billion, above the prior $57.9 billion. On the flip side, Nvidia was one of the best performers, up 5.21%. Amgen was the top gainer on the Dow, after its q$ beat on results. AMD settled 6.3% lower after it reported weaker than expected data centre sales for Q4 and a decline in revenue for Q1.   

Asian stocks: Futures are mixed. Stocks traded mixed with the region only partially benefitting from the more positive risk mood in the US. Chinese markets reopened from the Spring Festival and digested disappointing China Caixin Services PMI data. The ASX 200 edged higher with the gains led by resources, tech and mining sectors. The Nikkei 225 traded between gains and losses with the index pressured intraday on a strengthening yen. Earnings data showed the fastest pace of wage growth in Japan since 1997. The Hang Seng and Shanghai Comp declined on the mainland’s return from holiday Recent US-China tit-for-tat tariffs linger over markets.

Gold surged higher again and is up over 9% this year. Haven demand is one driver, a physical shortage in London another, while the falling dollar and Treasury yields is also helping bugs. A head and shoulders pattern in the 10-year could see the rate fall to 4.20% from around 4.42% currently.

Day Ahead – Bank of England Meeting

A 25bp cut firmly expected by markets, which would take the base rate to 4.5%. The Bank seems content with cutting once per quarter, and there’s not much expectation it will say much about its future intentions today. The vote split is expected to be 8-1 with the biggest dovish risk if arch-hawk Catherine Mann finally joins the crowd and votes for a rate cut, though that’s unlikely.

Growth and two-year ahead inflation forecasts are set to be cut while near-term inflation likely to rise. The economic backdrop to the upcoming meeting is one clouded by a disappointing growth with GDP falling short of expectations in the past three releases. Survey data has continued to be downbeat with the latest Composite PMI adding to the gloom. On the inflation front, the services print slipping to 4.4% from 5.0% is the key number, though it is predicted to bounce in the near-term.

Chart of the Day – Can GBP/USD break out of the bear trend?

Anything different to a ‘gradual approach’ by the BoE today to lowering rates will impact GBP. Risks are probably to the dovish side either in the vote split or in lower growth forecasts. Governor Bailey could also take a more cautious approach in the press conference. More broadly, sterling has been one of the least badly hit G10 currencies this week, arguably because the UK runs a trade deficit with the US and goods exports to GDP are relatively small.

That has seen cable bounce strongly off long-term support around 1.23. Yesterday saw the major beat the late January high at 1.2523 and it is trying to break decisively out of th long-term downtrend. The next major upside level is at 1.2610, which is a big Fib retracement level (38.2%) of that September bear trend.

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