Markets US yields yesterday started a catching up move after the rise in Germany on Monday. Contrary to last week, a poor NY Empire manufacturing survey this time was no pretext to push yields back lower. On the contrary, US yields were propelled higher by comments of Fed's Waller as he provided a detailed analysis of the Fed's rate strategy going forward. Waller acknowledged that the pieces are falling in place for the Fed to gradually start cutting rates this year. However, the process should be deployed 'methodically and carefully'. In this respect, he tempered markets' aggressive rate cut expectations. "With economic activity and labor markets in good shape and inflation coming down gradually to 2%, I see no reason to move as quickly or cut as rapidly as in the past", he was quoted. He also indicated that it is reasonable to start thinking about slowing the pace of the balance sheet runoff. US yields extended their intra-day rise post Waller, closing between 7.5 bps (2-y) and 12 bps (30-y) higher. Spill-overs from the US also help German yields back into positive territory. In a steepening move, the 2-y yield closed little changed, but the 30-y added 3.0 bps. Equities stayed in the defensive (S&P -0.37%). The rise in US real yields also supported the dollar. DXY set a now 2024 top (close 103.35). EUR/USD extensively tested the 1.0877 support (close 1.0875). This morning, the combination of higher US yields and poor Chinese data (cf infra) is causing an outright risk-off positioning on Asian market. The dollar profits. EUR/USD declines further to 1.086. USD/JPY extends its sharp rally (USD/JPY 147.75). US yields maintain yesterday's rise. Later today, the US December retail sales are taking center stage. Monthly sales growth is expected at 0.4% M/M (0.2% for the control group). We look out whether markets keep Fed's Waller's assessment in mind that there is no reason to rush to aggressive rate cuts as US activity data continue to show resilience. Of course, the risk-off sentiment might hamper a further rise in (US) yields. Even so, the US 10-y yield sustainably returning above 4.10% indicates that the bottoming out process is finding more solid ground. The USD momentum is also improving further. EUR/USD 1.0724 (Dec low) is next target on the charts. This morning, the UK inflation brought a material upward surprise, suggesting that there is still a lot of work to do for the BoE. Headline inflation rose 0.4% M/M and 4.0% Y/Y (from 3.9%). Core inflation was unchanged at 5.1% (VS 4.9% expected). Services inflation also remains stubbornly high at 6.4% (from 6.3%). The report clearly shows that any speculation on the time of BoE rate cuts is very premature. Sterling rebounds after the data. EUR/GBP drops from 0.8615 back to the 0.86 big figure. News and views China's economic growth hit the 5% target in 2023. Official numbers released this morning showed the economic number two in the world expanding 5.2% y/y while ending the year with 1% quarterly growth. Hitting the government target was made easier by 2022's low comparison base. Separate December data indeed show the Chinese economy is still struggling to recover from a housing and consumer confidence slump. Residential property sales fell 6% for the whole year compared to 2022 and home prices declined at the fastest monthly rate (-0.45%) since 2015. Retail sales came in at a disappointing 7.2%. In addition, the jobless rate for the first time in five months picked up in December, from 5% to 5.1%. Industrial production extended a recovery that began early last year (4.6% YtD y/y) while fixed investments showed tentative signs of bottoming out after a year's long decline. They are only faint spots that won't ease calls for additional fiscal stimulus, especially as the government is rumoured to set a growth target between 4.5-5% for this year at the March National People convention. Monetary support is also seen as upcoming, even as the PBOC earlier this week defied expectations for a 10 bps cut to its one-year lending facility rate. China's yuan is holding steady after the publication of the figures. USD/CNY is testing resistance at 7.20. Early indicators from a Swedish private data company showed that housing construction started weakening again towards the end of 2023. Coming ahead of official data, the series showed new home construction fell by 4.7% m/m in December while readings of the previous months were revised lower. That brings the total decline from the peak in August 2021 to 68%. The numbers followed a couple of months which suggested the market was more or less stabilizing. Swedish housing faced a deep rout after the central bank sharply raised interest rates to fight inflation. Some 75% of homeowners have mortgages with variable rates, leading to a fast pass-through of monetary...

EUR/USD drops to over a one-month low on Wednesday amid some follow-through USD buying. Reduced bets for a March Fed rate cut act as a tailwind for the US bond yields and the Greenback. Mixed signals from ECB policymakers fail to impress the Euro bulls or lend support to the major. The EUR/USD pair remains under some selling pressure for the second straight day on Wednesday and drops to its lowest level since December 13, closer to mid-1.0800s, or the 200-day Simple Moving Average (SMA) during the early European session. The US Dollar (USD) builds on this week's breakout momentum through a short-term trading range and jumps to over a one-month peak, which, in turn, is seen as a key factor weighing on the major. Federal Reserve (Fed) Governor Christopher Waller said on Tuesday that the US central bank will not rush to cut policy rates until it is clear that lower inflation will be sustained. The comments forced investors to further push back their expectations for a more aggressive policy easing and remain supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond holds steady above the 4.0% threshold, which, along with a generally weaker risk tone, is seen underpinning the safe-haven Greenback. Reduced bets for an early interest rate cut by the Fed, along with an escalation of military action in the Middle East and rather unimpressive Chinese macro data, temper investors' appetite for riskier assets. In the latest development, the US carried out another airstrike targeting a Houthi missile facility in Yemen amid a threat to merchant vessels and US Navy ships in the Red Sea. Meanwhile, the official data released by the National Bureau of Statistics (NBS) showed that China's economy expanded at an annual rate of 5.2% in the final quarter of 2023. China's GDP growth was above the government's 5% target for 2023, though was driven by a lower base for comparison from 2022. On a quarterly basis, Chinese GDP expanded by 1.0% in Q3, as expected. Following the release, the NBS noted that China's economy faces a complex external environment and low consumer prices reflect insufficient domestic demand. Other data showed that China's Retail Sales and Industrial Production rose by 7.4% YoY and 6.8% YoY, respectively, in December, though did little to fuel any optimism or boost the broader risk sentiment. Adding to this, mixed views on inflation and interest rates by the European Central Bank (ECB) policymakers turn out to be another factor weighing on the shared currency, contributing to the offered tone around the EUR/USD pair. Bundesbank President Joachim Nagel said on Monday that it is too early for the ECB to discuss cutting interest rates as inflation remains high. In contrast, ECB Governing Council Member Tuomas Valimaki on Tuesday signalled his openness to consider lowering interest rates sooner than most of his colleagues. Furthermore, Portuguese central bank chief Mario Centeno said that a rate cut should be part of the discussion and no option should be taken off the table. Moreover, an ECB survey on Tuesday showed that Eurozone consumers have slashed their inflation expectations and see prices to grow by 3.2% in the following 12 months, down from 4.0% a month earlier. Adding to this, expectations for inflation three years ahead also came down to 2.2% from 2.5%. This fails to assist the Euro to attract any buyers or lend support to the EUR/USD pair. Moving ahead, traders now look to the release of the final Eurozone CPI print for some impetus. Meanwhile, the US economic docket features the release of monthly Retail Sales and Industrial Production figures later during the early North American session. This, along with scheduled speeches by Fed Governors Michael Barr and Michelle Bowman, the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and contribute to producing short-term trading opportunities around the EUR/USD pair. Technical Outlook From a technical perspective, spot prices already seem to have found acceptance below the 61.8% Fibonacci retracement level of the December move-up. Given that oscillators on the daily chart have just started gaining negative traction, some follow-through selling below the 200-day SMA, currently around mid-1.0800s, will be seen as a fresh trigger for bearish traders. The EUR/USD pair might then accelerate the fall further towards the 100-day SMA, around the 1.0765 region, before aiming to challenge the December swing low, near the 1.0725-1.0720 area. This is closely followed by the 1.0700 mark, which if broken decisively should pave the way for an extension of the recent corrective decline from a multi-month peak touched in December. On the flip side, the 1.0900 round figure now seems to act as an immediate barrier ahead of the 1.0920 horizontal zone, representing a nearly two-week-old trading range support...

Asia wrap The tone set by Federal Reserve Governor Christopher Waller has caused a shift in bond markets, indicating that there may not be a swift rate-cutting trajectory as previously expected. Waller, who played a role in the Fed's dovish pivot with his remarks in November, now emphasizes a cautious approach to rate cuts, suggesting that the Fed should proceed methodically and carefully. This stance contrasts with the market's anticipation of multiple rate cuts in 2024. Waller acknowledges that recent economic data has allowed the Fed to consider rate cuts in 2024. Still, he emphasizes the need for careful calibration, given concerns about the sustainability of these trends. The market had priced in a more aggressive rate-cutting scenario, leading to an upward shift in yields across the curve. The key takeaway from Waller's recent comments is the emphasis on a more measured approach to rate cuts, challenging the market's expectations of a March cut. While he believes that the policy settings are appropriately restrictive and should continue to put downward pressure on demand, he also notes that the healthy state of the economy provides flexibility. There is no urgency for immediate rate cuts. Waller's mention of potential revisions to the Consumer Price Index (CPI) data next month adds an element of uncertainty, and his suggestion of a terminal rate for bank reserves provides insight into the Fed's monetary policy considerations. Overall, Waller's remarks have contributed to a reassessment of rate-cut expectations and have prompted a notable shift in bond markets. China question marks China has achieved its growth goal for 2023, with a reported annual growth rate of 5.2%. This figure was pre-announced by Premier Li Qiang in Davos. However, the journey to this growth has been marked by challenges, including tepid domestic demand, producer prices in deflation, and three consecutive months of consumer price declines—the longest stretch of CPI deflation since 2009. The lingering impact of President Xi's property crackdown continues to affect the economy, with efforts to revive the housing market showing limited success. In 2024, the Chinese government plans to prioritize "industrial innovation" overconsumption, facing challenges from restrictions imposed by the Biden administration on China's access to advanced technology. Investors' expectations for China's economic growth have declined, as reflected in BofA's Global Fund Manager survey, where expectations turned negative for the first time since May 2022. The People's Bank of China (PBoC) refrained from a Medium-Term Lending Facility (MLF) cut earlier in the week, raising questions about potential steps for economic recovery. Recent activity data for December showed mixed results, with retail sales, industrial output, fixed asset investment, and the surveyed jobless rate presenting a varied picture. The headwinds facing China's economy in 2023 have not subsided, and the geopolitical environment may become more contentious following election results in Taiwan.

Gold price is testing critical daily support ahead of Thursday's US Retail Sales data. Middle East geopolitical escalation and easing Fed cut bets support the US Dollar. Gold price witnessed a symmetrical triangle fakeout, as tables turned against buyers.  Gold price is licking its wounds at around $2,025 in Wednesday's Asian trading, having incurred heavy losses on Tuesday, courtesy of the unabated demand for the US Dollar (USD) amid a further escalation in the Middle East geopolitical tensions and easing bets for aggressive US Federal Reserve (Fed) rate cuts this year. Gold price eyes US Retail Sales for repricing of Fed expectations The US Dollar found solid demand on Tuesday, surging to its highest level in more than five weeks against its major rivals near 103.40 after risk sentiment took a big hit on reports that Iran's Islamic Revolutionary Guard Corps (IRGC) fired missiles at targets near the US Consulate in Erbil, Iraq. Also, Iran-backed Houthi rebels struck a US-owned cargo vessel with an anti-ship ballistic missile off the coast of Yemen. Additionally, investors pared back bets for aggressive Fed rate cuts this year, following Fed Governor Christopher Waller's less dovish speech, offering extra legs to the US Dollar comeback. Waller walked back on his previous view on the dovish policy pivot, as he noted on Tuesday that while inflation was approaching the central bank's 2.0% target, the Fed should not rush to cut interest rates until lower inflation can clearly be sustained. In Wednesday's trading so far, risk-aversion continues to dominate the market sentiment, keeping the US Dollar underpinned near multi-week highs. Therefore, Gold price remains vulnerable as persistent geopolitical tensions in the Red Sea are likely to keep investors on edge, supporting the US Dollar's safe-haven status. In the latest developments, the US military carried out new strikes in Yemen late Tuesday against anti-ship ballistic missiles in a Houthi-controlled part of the country after a missile struck a Greek-owned vessel in the Red Sea. Looking ahead, the US Retail Sales data due later at 13:30 GMT will be closely eyed for fresh hints on the timing and pace of the Fed rate cuts. Markets are now pricing in a 65% probability of a rate cut by the Fed in March, according to the CME Group's FedWatch tool, compared with the 81% likelihood at the start of the week. The US Retail Sales are seen rising 0.4% MoM in December, compared with a 0.3% increase reported in November. Retail Volume, ex-Autos, is set to rise 0.2% in the same period. A weak US Retail Sales report is likely to point to easing inflationary pressures, in turn, reverberating aggressive Fed rate cut expectations. Gold price technical analysis: Daily chart As observed on the daily chart, Gold price portrayed a symmetrical triangle fakeout on Tuesday and in fact confirmed a downside break from the triangle after closing the day below the rising trendline support, then at $2,031. Gold sellers barged in after the 21-day Simple Moving Average (SMA) at $2,046 failed to hold the fort. Gold price is challenging the critical 50-day SMA support at $2,021, at the time of writing. Failure to defend the latter on a sustained basis could fuel a fresh sell-off toward the $2,000 mark. Ahead of that, the $2,010 round level could offer some temporary support to Gold buyers. The 14-day Relative Strength Index (RSI) indicator has flipped bearish, as it falls further below the midline. Any recovery in Gold price would need acceptance above the triangle support now turned resistance at $2,033. The next strong upside barrier is seen at $2,046, the confluence of the 21-day SMA and the triangle resistance. Fresh buying opportunities will generate above the latter, allowing Gold price to retest the $2,050 psychological level.

Stocks are lower across the board on Tuesday and the key driver is the revaluation of rate cut expectations. The market has scaled back the prospects for a US rate cut in March. The CME Fedwatch tool is now pricing in a 69% chance of a cut, this had been above 75% on Monday. The increase in Treasury yields comes on the back of some hawkish commentary from the ECB, and further attacks on commercial vessels in the Red Sea. More Red Sea disruption, but will it really impact inflation? The WSJ is reporting that Shell has suspended Red Sea transits indefinitely, and overnight Qatar said that shipments of LNG would be delayed due to the unrest. The reaction in the oil markets has been fairly muted so far, the Brent crude price is up by less than 1%, and remains below $80 per barrel, and UK natural gas prices have risen only slightly after falling last week. However, the attacks are a warning sign that supply disruptions could come back to haunt the market. We mentioned last week that the Vix, the index that measures volatility in the S&P 500, was at subdued levels. The Vix has picked up in the last 24 hours and is now back above 13. This is still low by historic standards. While the Vix seems to be underestimating risks that could derail stock markets in the future, the IMF produces a chart called the World Uncertainty Index. As you can see, this has risen in the last quarter of 2023, as geopolitical tensions come back into focus.   Chart: IMF world uncertainty index Source: IMF Traders need to be aware of the magnitude of the increase, because the greater the uncertainty the more this can impact stock prices. Right now, the increase in global uncertainty is manageable. Although ships are being attacked on the Red Sea, many are still sailing through. Added to this, it takes an extra 9 days approx. to reroute ships and avoid the Suez Canal and sail around the horn of Africa. This is annoying, but it should not cause the magnitude of supply disruptions that we saw during the pandemic era. Overall, the markets are right to reassess the level of the Vix, and to scale back some of the interest rate cuts it had been expecting in recent weeks. However, there is no panic in the market. Watch Waller comments for market direction Added to this, the 10-year Treasury yield may have popped above 4% on Tuesday, but Fed member Christopher Waller, a member of the board of governors of the Federal Reserve System, is speaking later today. His comments are worth watching since he is a noted dove. Comments that he made at the end of November were considered to be dovish and supportive of rate cuts. This was seen as a precursor to the Fed's pivot at its December meeting. Thus, Waller's comments will be watched closely in case they give us a steer on what to expect from the Fed in the coming weeks, and whether a March rate cut is likely. The disinflation trend is mostly intact, even with the uptick in prices in December, and there have some weak labour market indicators recently, which could see Waller maintain his dovish message.   Thus, although stocks are falling alongside bonds (bond yields are rising), and the dollar is higher, these trends could reverse course if Waller signals a rate cut is coming in March. A bad earnings season could clear the decks for a recovery for financials in 2024 Both Goldman Sachs and Morgan Stanley reported weak earnings for 2023. Goldman reported its lowest annual profits in 4 years, although its performance picked up in the final quarter. Investment banking remains a bleak spot as deal making levels are subdued. Morgan Stanley saw its profits fall by a third in Q4, as its wealth management division saw costs rise. For 2023 as a whole, Morgan Stanley saw profits fall by 17% to $9.1bn. Overall, US bank earnings for Q4 have been disappointing, with few of the large US banks benefiting from strong net interest income, although JP Morgan reported a record quarter in Q4. The financial sector in the S&P 500 has lagged the overall index this year and has been basically flat since the start of January. The financial sector also underperformed the S&P 500 for 2023 as a whole, rising a mere 5%. At the time of writing, Goldman Sachs and Morgan Stabley's share prices were higher, as the markets shrugged off the weak earnings data, however, both stocks have a long way to go to catch up with the overall market. CPI could see the UK fall back in line with its peers Elsewhere, the UK's CPI data will be...

Currencies & metals get sold in the overnight markets Credit Card delinquencies rise... Uh-oh! Good Day... And a Tom Terrific Tuesday to you! Well, congrats to the Bills and the Bucs as they joined the other 4 winners of their playoff games yesterday and last night. Man, do I miss my RedZone tv station, as i find it difficult to watch a full NFL game, and prefer to watch highlights from live games instead... The day yesterday was warm, but overcast, and allowed me to sit outside and read a good part of the day, without worrying about the sun on my skin... I've just started a new book for me... The Memory Man series... It's a good one so far! Good friend, Karen brought me a ton of books to read the other day, and so now I'm set, with reading material for some time to come! The Guess Who greets me this morning with their song: Undun...  Well, it was a holiday here in the U.S. yesterday, so there wasn't much movement in the metals, Gold did gain $6 on the day to close at $2,055... Silver ended up losing 3-cents on the day, Mondy, and ended the day t $23.16... The BBDXY gained 1 index point on the day... The price of Oil bumped higher in its range to a $72 handle, and after I chastised the bond boys yesterday for not listening to the Fed Head Speakers last week, they adjusted the 10-year's yield higher to 4.0%...  I was reading my weekly Classic Wisdom yesterday, and realized that I had become addicted to knowing more and more about the ancient Greeks, and others of the time... Yesterday they drew a comparison of Socrates and MLK... they had both given their lives to better enlighten people... You learn something new every day, folks... and when you don't, it was a wasted day!  In the overnight markets last night... Well, all hell broke loose last night... The dollar bugs went on rampage, and Gold got sold down the river... The BBDXY gained 7 index points overnight, and Gold lost $17 in the early trading. This has been swift, and strong... I guess it was bound to happen given all the talk of no rate cuts early by the Fed Heads... But C'mon dollar bugs... are you kidding me? You really believe the dollar should be bought right now? Apparently so... UGH! Silver is down 15-cents to start the day today, barely holding on to the $23 handle...  The price of Oil has bumped higher in the range and trades with a $73 handle, and the 10-year's yield inched higher and trades this morning with a 4.01% yield... I really don't get why the dollar bugs are running all over the kitchen floor this morning, but they are, and so we'll just batten down the hatches. The euro has dropped below 1.09, and the rest of the currencies, sans rubles, are looking pretty ugly this morning...  Well... the world planners are meeting in Davos, Switzerland... this isn't as clandestine as the Bilderberg meetings, and I did get a kick out of their plan for the meeting... "To restore Trust"... Hmmm... that would mean that they did have our trust before, and somehow lost it... I wouldn't trust these boys and girls with anything!  Did you hear that Credit Card delinquencies are rising? And that to me is sign that consumers have been using credit cards to make ends meet, and now they're having problems with paying the large interest rate-based loans down... This could end up being what really causes the U.S. economy to fall flat on its face, folks... I'm just saying... Last week I wrote about how Gold had outperformed stocks and bonds since the turn of the century... And then i Bill Bonner's letter yesterday, he wrote this: "Our guess is that we've already seen "Peak America" in the late '90s. That was the best time – ever – to sell US equities. The Dow was trading at over 40 ounces of gold. So, if you had $100,000 in stocks…and you traded them for gold, you would have gotten 357 ounces.   If you'd left your money in stocks, it would have grown from $100,000 to over $370,000 over the next 23 years. Not bad. But your gold coins would have gone from $280 per ounce in 1999 to over $2,000 an ounce today, turning your $100,000 into $714,000. " - Bill Bonner from Bonner private research...  Well, the warnings have all been sounded regarding traveling through the Red Sea... Another U.S. ship was hit by a missile fired from those not wanting anything to go through the passageway. The US. had tried to send a message last week by firing on the terrorists, but now we learn that Congress hadn't given the POTUS...