The prospect of a Fed rate cut in the first quarter has waned, which provided support to the dollar and bond yields in January. So far in 2024, US data has tended to be better than expected, not lower, so the likelihood of a rate cut by the Fed in March is much lower. While it is not entirely impossible for the Fed to ease monetary policy in March, the chances of it happening are far from what they were at the beginning of the year.

There are two key data events this week that could change the Fed’s interest rate outlook again, namely the US Q4 gross domestic product (GDP) and the core personal consumption expenditures price index (PCE Price Index). If one or both of these data come out of the way than expected, then any subsequent adjustment of monetary policy expectations could cement the trend of a pullback in the dollar and US Treasury yields so far in 2024.

In addition to these data releases, traders will also be keeping an eye on the meetings of the Bank of Japan and the European Central Bank. The yen has struggled against the dollar so far this year as expectations of when the Bank of Japan might start abandoning its ultra-loose policy have been delayed. Meanwhile, the ECB is expected to remain on hold at its benchmark interest rate at 4.5% at Thursday’s meeting. Central bankers at the Federal Open Market Committee (FOMC) and the European Central Bank (ECB) have been suppressing market expectations for an early rate cut in recent weeks, and this trend is likely to continue when we hear from the ECB president.

Gold has been subdued in the face of a well-supported dollar and rising bond yields. The spot contract was trading at $2,026 an ounce during Wednesday’s Asian session. For precious metals to re-challenge the $2050 mark or beyond, it is likely to rely on weaker US economic data such as gross domestic product (GDP) and the core personal consumer price index (PCE Price Index). Conversely, if the US macroeconomic data continues to strengthen, gold may fall back to the psychological level of $2,000 per ounce.

‍

Elsewhere, oil prices have been trading higher this week as some risk premiums have been pumped into them. The ongoing conflict in the Middle East and between Russia and Ukraine has put potential supply disruptions on the agenda, with the WTI contract currently hovering between $74-$75.

The earnings season in the U.S. continues, and while there have been a few companies that have reported disappointing results, nothing has panicked the market so far from a confidence perspective. If Big Tech delivers another good result in Q4 2023, it could support the S&P 500’s rally to new highs. However, the market remains highly sensitive to interest rate movements, so if macroeconomic indicators change the monetary policy outlook further, equities could see a correction. Therefore, all eyes this week will be on the US gross domestic product (GDP) and inflation gauge, the core personal consumer price index (PCE Price Index).

Dear Investors,

The following foreign exchange and precious metals rollover rates are subject to adjustment, please refer to the table below for details.

Note:

1. The overnight interest settled by the platform is 00:00 points of the platform time. We recommend that you manage the positions you have opened and ensure that you have sufficient margin in your account to cover the payment of special rollovers.

2. The above information is provided by our Liquidity Provider (LP) and may contain omissions or errors. In case of change, the trading platform shall prevail.

Most of the rollover rates offered by the company for foreign exchange and precious metal products will be updated at the beginning of each week. Clients can check the details of the day’s rollover in the “Product Specifications” section of the platform.

The tug-of-war between Fed officials and broader financial markets over the outlook for interest rates continues. While the market expects the Fed to cut interest rates at all costs during 2024, Fed officials have been cautious in their rhetoric. Christopher Waller is the latest Fed member to postpone the pace of easing expected by the market. Waller said interest rates should be lowered “methodically and cautiously”.

Bond yields and the dollar have regained their vitality as Waller’s expectations of the pace of monetary policy easing in 2024 have poured cold water on them. The yield on the 10-year Treasury note has risen back above the psychological level of 4% several times, disrupting investors’ confidence in the stock market. At the same time, the dollar continued to reverse its trend at the start of 2024, with the US Dollar Index (DXY) returning above the 103 mark. The dollar’s recent rally may be a reminder that rumors of the dollar’s demise in the second half of 2023 have been greatly exaggerated. Especially if bond yields continue to move higher as interest rate expectations reshape.

The recovery in the US dollar and bond yields weighed on gold prices to some extent. Precious metals prices fell 1% during Wednesday’s Asian session, with spot prices hovering near $2,028. Although as geopolitical tensions escalate rather than subside, safe-haven buying inflows are likely to provide support to gold prices. However, if macroeconomic data or the Fed’s speech trigger a further hawkish shift in the interest rate outlook, then gold could fall below the $2,000 level. In other words, the short-term fate of gold prices is likely to be in the hands of the bond market.

The geopolitical environment continues to have an impact on oil prices. The outlook for shipping is far from clear due to the conflict in and around the Red Sea, but the risk premium in oil prices does not appear to be high. If shipping routes are disrupted more severely, this will not only affect the oil market, but also have a broader impact on prices in the global economy. Therefore, the current developments near the Red Sea have the potential to lead to an explosion of oil and global inflation. The West Texas Intermediate (WTI) crude oil contract has been trading in a range of $71 to $74 for most of January, but there is still room for the contract to move higher given the ongoing conflict in the Middle East.

Looking ahead, the release of US retail sales data (Wednesday US time) will be worth watching, as any potential “overheating” in the data could lead to a reconsideration of the possibility of a rate cut by the Federal Open Market Committee (FOMC) in March. When it comes to Fed hopes and when to start cutting interest rates, financial markets are trying to think on the bright side. While last week’s producer price index (PPI) data was weak, one need only look back at the higher consumer price index (CPI) and strong wage data a few weeks ago to see that Fed official Waller’s cautious rhetoric about the outlook for interest rates was not unreasonable.

US crude oil USOIL.FEB24 for February will expire on 2024-01-17, and the last trading time is 2024-01-17 23:55 system time (Beijing time 2024-01-18 05:55)

USOIL.MAR24 for March trading will start trading at 2024-01-16 01:01 system time (Beijing time: 2024-01-16 07:01)

Note: After the market closes on the maturity settlement date, if the client holds an open position, it will be forced to close the position.

Risk assets have started 2024 more cautiously, with investors realizing to avoid going too far ahead on Fed rate cut expectations in case macro data starts to play headwind. If the upcoming CPI and PPI data in the US are soft, then it is likely to give the green light for the market to resume the rally. However, if the inflation data falls into the “stalemate” category, this could prompt a rethinking and repricing of the extent to which the Fed is likely to accommodative in 2024. As a result, investors are trading time for space ahead of the release of the US CPI data, which will provide the next indicator of interest rate expectations and market sentiment.

It’s still early, but so far, bond yields and the dollar have performed much better this month than they did in December. Part of the reason for the price increase is the natural rebound after the sell-off in late 2023, and last week’s non-farm payrolls data fueled the upward momentum. While the Federal Open Market Committee (FOMC) is expected to ease monetary policy this year, it is likely that other central banks around the world will follow suit, and it is this underlying scenario that supports the dollar from a yield differential perspective. The DXY has been consolidating around the 102.50 level as the 10-year bond yield managed to hold the 4% level.

This consolidation phase of the US dollar has effectively put the brakes on gold. Spot gold contracts have retreated from their 2024 highs above $2,060, in large part because both the dollar and bond yields have shown resilience so far in January. Spot gold was trading at $2,030 during Wednesday’s Asian session, and any potential pullback above $2,050 has lost some of its appeal due to the current dollar. Any tepid US CPI data could trigger an upside in precious metals prices. However, if 2023 has taught us, it is that the path of inflation is not linear, so whether the current inflation pullback is far from inevitable is far from inevitable.

Speaking of inflation, Australia’s November CPI was released today at 4.3 y/y%，低于预期的4.4% and 4.9% in October. To the delight of the RBA, this is the slowest rise in annual inflation since January 2022. The November CPI result adds to the RBA’s February interest rate “on hold”, but the RBA will wait for the release of the December quarterly CPI later this month to confirm its downward trend. The AUD/USD exchange rate reacted mutedly to the data, continuing to trade around the 0.67 level.

Elsewhere, the oil market continues to swing around geopolitical tensions and Red Sea shipping headlines. Oil prices recovered overnight on news of the disruption of Libyan oil fields, but remained weak as Saudi Arabia lowered its offers to Asian customers. Whenever we see a price reduction of this nature, it usually indicates that the demand situation is not particularly good.

Asian stock markets were mostly subdued at the start on Wednesday, with the exception of the Nikkei, which opened 2024 with an active start to a multi-decade high. But the market is mostly on the sidelines until the release of important US inflation data.

If we look at the first trading day of the year in the United States, financial markets will start 2024 with a more cautious start than we will see in 2023. This may be because the first big test of the year will come in Friday’s non-farm payrolls data. The U.S. job market has maintained a certain level of prosperity in 2023, and if there are any surprises in December’s employment data, it will test the market’s expectations for overly dovish Federal Open Market Committee (FOMC) policy in 2024.

On the other hand, if employment is low, this could kick-start the upward momentum in risk assets again. Therefore, before the end of the week, the key will be the employment data and the FOMC minutes. People remain cautious on this issue as there is still a gap between the market and the Fed’s expectations for the level of interest rates in 2024.

The US dollar suffered a heavy sell-off in the fourth quarter of 2023, but at the start of the new year, the US dollar recovered in a more positive trajectory as bond yields rose. The U.S. Dollar Index (DXY) has fallen 2% over the past year, with most of the decline occurring in the last two months of the year, as the market’s focus shifted to anticipating rate cuts rather than further hikes. Although DXY comfortably held the 106 mark in early November, by the end of December, the index was in contention to stay above 100. At the beginning of 2024, the 10-year bond yield has recovered to around 3.95%, and the dollar index has accordingly broken through the level of 102. Whether the dollar is able to continue its pullback will depend on how bond yields react to key jobs data this Friday.

Even as bond yields and the dollar move higher, gold remains elevated. The precious metal has barely pulled back, with spot prices still hovering around $2,060 (Wednesday in early Asian trading). For now, it appears that the rising Treasury yields have so far been unaffected by safe-haven purchases. Gold has outperformed 2023 (up 13% for the year) and the outlook for 2024 looks positive, provided that the current expectation of a dovish Fed rate bias continues. This quarter’s US macro data and its impact on the outlook for interest rates will determine whether gold will be able to hit the $2,100 mark again in the near term.

Crude oil prices are still being affected by the latest Red Sea shipping incident. However, it was preceded by another attack that, although the escalating situation did not ease, prices dropped and Maersk Line once again suspended routes in the region. Tensions and potential supply disruptions remain, but the risk premium has disappeared from oil prices. The market seems reluctant to buy oil prices at this time, after a nearly 11% drop in oil prices last year. The volatility of the energy market is a feature of 2023, and the market has so far been cautious about the start of 2024, given the ongoing conflicts taking place near many major oil producers.