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Spot gold and silver rebounded quickly, currently trading at $4,864/oz and $83.40/oz respectively.10-year US Treasury futures fell 1 point, and 30-year futures fell 7 points.February 2nd - With Kevin Warshs nomination as Federal Reserve Chairman, market focus has abruptly shifted from short-term interest rates to the Feds $6.6 trillion balance sheet and its fundamental role in the market. Zach Griffiths, Head of Investment Grade Bonds and Macro Strategy at CreditSights, noted, "He has consistently been a vocal critic of the Feds balance sheet expansion." Warsh hopes to fundamentally reverse the trend of asset expansion and push for other reforms. However, this move will face complex challenges, directly impacting not only long-term interest rates but also the core markets upon which large global financial institutions rely for daily interbank lending. If policymakers agree to shrink the balance sheet, the transmission effect in the market could lead to a conflict between the Feds and the governments goals of reducing long-term borrowing costs. This could force the Treasury or other US agencies to become more deeply involved in market management, which will face even greater challenges given the continued rise in total borrowing demand and the already over $30 trillion national debt. PGIM points out that if Warshs predictions are true, then the pressure to regulate will shift to the Treasury.February 2nd - On February 1st local time, Mexican President Sinbaum announced plans to send humanitarian aid to Cuba, including food and other basic necessities, while simultaneously seeking to resume oil shipments to Cuba "through all diplomatic channels" despite US restrictions. On the evening of January 31st, US President Trump publicly stated that he had asked Sinbaum to halt oil shipments to Cuba. On the same day, Mexican Foreign Minister De la Fuente responded that Mexico would not suspend humanitarian aid to Cuba.February 2nd - On February 1st local time, US President Trump, answering reporters questions about Iran at Mar-a-Lago, stated his hope that "a deal can be reached." Responding to Iranian Supreme Leader Khameneis warning that a US strike would trigger a regional war, Trump said that if a deal cannot be reached, "then well see if he (Khamenei) is right." Trump emphasized to reporters that the US has deployed "the worlds largest and most powerful ships" in the region. Earlier that day, Iranian Foreign Minister Araqchi stated that Iran "remains confident" of reaching an agreement with the US on the nuclear issue.

US Dollar Index falls below 104,000 on China-inspired optimism and inconsistent Fed utterances in advance of US inflation

Daniel Rogers

Jan 09, 2023 14:43

US Dollar Index.png 

 

US Dollar Index (DXY) renews its intraday low near 103.75 as it extends the previous day’s U-turn from a three-week high during Monday’s Asian session. In doing so, the DXY expresses both optimism and mixed apprehension on the next move of the US Federal Reserve (Fed).

 

That Nevertheless, the risk-positive headlines from China, one of the world’s main commodities users, strengthen the market’s bullish sentiment as Beijing reopens national borders following a three-year suspension. On the same line would be the early evidence suggesting China’s strong spending throughout the Christmas season, as well as comments from People’s Bank of China (PBOC) Official suggesting optimism surrounding China’s economy conditions.

 

In contrast, negative US wage growth, ISM Services PMI, and Factory Orders data from the previous day depressed Treasury bond yields and the US Dollar Index (DXY). Nonetheless, the headline US Nonfarm Payrolls and Unemployment Rate data for December were positive.

 

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, highlighted dangers of a US economic slowdown in response to the mixed statistics, while Charles Evans, president of the Federal Reserve Bank of Chicago, recommended a 0.50% rate hike in December. In addition, Kansas City Fed President Esther George underscored inflation fears, while Richmond Federal Reserve Bank President Thomas Barkin praised the last two months of inflation figures as "a move in the right direction" but emphasized inflation anxieties due to the higher median values.

 

10-year US Treasury yields fell 16 basis points (bps) to 3.56 percent, the lowest level in three weeks, after Wall Street ended higher. At the time of publication, intraday gains for S&P 500 Futures was 0.20 percent.

 

Moving forward, Thursday's US Consumer Price Index (CPI) for December is emphasized by the mixed US data and a decrease in US Treasury bond yields, as stronger inflation readings could shift focus to the Fed's hawkish bets and force the DXY to rebound.

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