The RBNZ is planning further interest rate hikes. Gold under pressure from rising government bond yields

According to the US Commerce Department, retail sales rose by 3% in January from the previous month, the largest increase in nearly two years. This is a clear sign that household spending remains strong despite the central bank’s tough tightening campaign to slow demand. With a strong labor market, increased wage pressures, and solid consumer spending, the stars may align for further FOMC hikes and higher interest rates over the longer term. This scenario could worsen sentiment and create headwinds for stocks, especially in the technology sector. Nevertheless, the probability of a soft landing on the economy remains high.

Shares of Analog Devices (ADI) jumped by 7% to a 52-week high yesterday after posting quarterly results that beat Wall Street estimates. Roblox (RBLX) rose by 26% as it reported better-than-expected fourth-quarter results, helped by a jump in video game orders. Airbnb (ABNB) also provided an upbeat outlook after the company’s quarterly results beat analysts’ estimates.

The US crude oil inventories increased by 16.3 million barrels last week to 471.4 million barrels, well above the estimates of 1.2 million barrels. Despite the increase in inventories, black gold prices still rose yesterday as the International Energy Agency (IEA) raised its forecast for oil demand in 2023 by 500,000 BPD to nearly 102 million BPD. The IEA also warned that an alliance of OPEC+ producers might try to cut production to support oil prices.

It was originally intended that gold would exceed $2,000 per ounce in the first quarter of this year, repeating the rally seen in April 2022. But this did not happen, as a strong US labor market and GDP growth have increased the likelihood of a longer tightening cycle, fueling the dollar and government bonds. Gold and silver are inversely correlated to the dollar and government bond yields, so “precious metals” are now under pressure.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) declined by 0.37%, China’s FTSE China A50 (CHA50) fell by 0.77%, Hong Kong’s Hang Seng (HK50) ended the day down by 1.43%, India’s NIFTY 50 (IND50) added 0.48%, while Australia’s S&P/ASX 200 (AU200) ended the day down by 1.06%.

Japan’s trade deficit widened to a record high in January amid a global slowdown. Export growth slowed sharply to 3.5%, with equipment for the production of microchips being one of the largest breaks, signaling weakening global demand in the technology sector. Imports continued to show double-digit growth, rising to 17.8% from a year earlier, as expensive energy supplies continued to drive up import costs. China’s change in virus policies has also hit Japan’s exports, as the number of Covid cases rose sharply after the Covid-Zero policy was canceled, causing disruptions across the country. Shipments to China and other Asian countries account for more than 50% of Japan’s total exports.

The Reserve Bank of New Zealand is forecast to raise interest rates another 0.5% to 4.75% next week. While still a significant increase, it is less than the 75 basis point increase the RBNZ had planned in its November monetary policy statement. The main reason for the rate hike is ongoing inflationary pressures. The rate is expected to peak at 5.25%, and rate cuts will not begin until 2024.

Australian labor market data has disappointed economists. The unemployment rate rose from 3.5% to 3.7%, while the number of jobs decreased by 11.5K. Australia’s economic data raise the question of how long the RBA will be able to remain hawkish.