Market news

* Tokyo CPI increases more than expected, puts pressure on BoJ

* Dollar consolidates, still near 9-month low to euro on central bank bets

* Intel misses analyst estimates, Q1 guidance disappoints, shares drop 9.5%

* Asian equities hit 9-month high as recession fears wane

FX: USD closed in the green after posting a fresh cycle low at 101.50. The 10-year Treasury yield also advanced higher. It is now back above the 3.5% level. Focus turns to today’s US Core PCE deflator, the Fed’s favoured measure of inflation.

EUR eked out a new 9-month high at 1.0929 before closing below 1.09. GBP closed little changed at 1.2406. USD/JPY rebounded from a low of 129.01 and finished higher by 0.48%.  AUD settled marginally higher at 0.7115. It posted fresh 7-month highs at 0.7142. USD/CAD dropped below short-term trendline support just above 1.33. But buyers have stepped in this morning.

Stocks: US equities ended higher after better-than-expected Q4 GDP and continued hot labour market data. It was a choppy open again, but indices closed near their highs. The benchmark S&P 500 gained 1.1%. The Dow finished 0.61% higher. The tech-laden Nasdaq jumped 2.00%. Tesla closed up 10.97% as its guidance was well received by investors. There were also decent numbers from Mastercard and American Airlines.

Asian stocks are in the green and poised for their fifth straight week of gains. But advances have been capped by the disappointing results from Intel which were released after the US close. The broadest index of Asia-Pacific shares outside Japan is up nearly 11% so far this month.The index is on course for its best-ever monthly January performance.  

US equity futures are pointing to a negative open due to Intel’s earnings miss and weak guidance. Futures in Europe are indicating a higher open too (+0.3%). The cash market closed up 0.6% yesterday.

Gold is weakening for a second day having topped $1949 early yesterday. The firmer greenback and Treasury yields are holding the bullish momentum back.

Data Breakdown – Soft landing hopes raised

Thursday’s US data again lifted investor’s hopes of a soft landing – that is one in which inflation eases against a backdrop of slowing but still resilient economic growth. The GDP data on the surface was good seemingly pointing to robust activity. But there were worrying signs of a slowdown with consumer demand softening at a time when better supply chains have improved stock levels. The weekly initial jobless claims data continued to show tightness in the labour market.

Today’s economic release will give us further clues on easing inflation. The core PCE deflator is seen falling to 4.4% y/y. A slight pick up in the monthly rate is forecast to 0.3% from 0.2%. The dollar has lifted off its lows in the last few sessions. But easing price pressures should confirm a 25bp rate hike at the Fed meeting next week.

Chart of the Day – Gold comes off the highs

Gold rose just over 20% from its lows in late September. It made a new high at $1949 yesterday, the highest level since April 2022. The Fed pivot theme has seen the dollar sink and bets on smaller rate hikes with cuts priced in for later this year. Higher interest rates make gold, which provides no returns, less attractive. Cooling inflation should be confirmed by today’s PCE data while recessionary forces are also intensifying.

ETF holdings have jumped in recent weeks but the precious metal is overbought on the daily and weekly charts. Support is the Fib level (61.8%) of last year’s decline at $1896. The 21-day SMA comes in around here as well. The next upside level is $1959/65.