Factory inflation in the US shows no signs of easing. Gold is under pressure because of the rising dollar

By JustMarkets

In the US, the Producer Price Index (PPI), which shows the rate of inflation between factories and plants, rose by 0.7% over the past month. Meanwhile, initial jobless claims fell again, indicating a strong and resilient labor market. Fed officials are once again scaring investors into returning to more rate hikes as demand does not decline. St. Louis Federal Reserve Bank President James Bullard said yesterday that the prospect of the Fed returning to more rate hikes is not out of the table. Bullard’s comments echoed those of Cleveland Fed President Loretta Mester, who said she saw a compelling case for a 0.5% rate hike at the last Fed meeting. Treasury yields jumped on these statements, which led to a decline in rising sectors of the market, including consumer and technology. As the stock market closed, the Dow Jones Index (US30) decreased by 1.26%, and the S&P 500 Index (US500) fell by 1.38%. The NASDAQ Technology Index (US100) lost 1.78%.

Tesla (TSLA) recalled 362,000 electric cars equipped with its “Full Self Driving” software, which can cause cars to “act unsafely at intersections.” The company’s stock was down by 5%. Roku (ROKU) reported outstanding quarterly results. The streaming device maker reported an optimistic outlook. The company’s stock jumped by 11% on the report. Cisco Systems Inc (CSCO) reported better-than-expected quarterly results. The company’s stock rose by 5% after the report was released.

The Congressional Budget Office (CBO) in the US issued a warning yesterday regarding the debt ceiling, which continues to be a contentious issue. The CBO stated that Congress has 5-8 months (depending on IRS revenues) to prevent a default, which could have widespread consequences for the United States.

Stock markets in Europe were mostly up yesterday. Germany’s DAX (DE30) gained 0.18%, France’s CAC 40 (FR40) added 0.89%, Spain’s IBEX 35 (ES35) increased by 0.35%, and the British FTSE 100 (UK100) closed up by 0.18% on Thursday.

European Central Bank President Christine Lagarde said that they would raise rates by 50 basis points at the next meeting. And this is despite a slowdown in inflation over the past few months.

Huw Pill, a chief economist at the Bank of England, made it clear that policymakers are prepared to slow the pace of interest rate hikes, saying there is a risk of “over-tightening.” The Bank of England may approve a quarter-point hike at its March meeting — or even suspend the hike cycle itself. Officials expect the UK to slide into recession with no sustainable growth until 2025.

Gold prices continued to fall as stronger-than-expected US inflation data, and hawkish comments from Federal Reserve officials raised fears of further interest rate hikes, while optimism about China’s economic recovery boosted demand for copper. The prospect of higher US interest rates is not good for the precious metals as it increases their opportunity cost. Rising rates also lead investors to prefer the dollar as a safe-haven asset, given that it offers higher yields.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) gained 0.71%, China’s FTSE China A50 (CHA50) decreased by 0.20% yesterday, Hong Kong’s Hang Seng (HK50) added 0.84%, India’s NIFTY 50 (IND50) gained 0.11%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.79%.

RBA head Philip Lowe said today that an interest rate cut could come next year if inflation declines steadily. Whether the RBA will raise rates at its next meeting depends on another labor market report. Strong labor market data will encourage further rate hikes and vice versa.

S&P 500 (F) (US500) 4,090.41 −57.19 (−1.38%)

Dow Jones (US30)33,696.85 −431.20 (−1.26%)

DAX (DE40) 15,533.64 +27.30 (+0.18%)

FTSE 100 (UK100) 8,012.53 +14.70 (+0.18%)

USD Index 104.05 +0.12 (+0.12%)

• – Australia RBA Governor Lowe Speaks at 00:30 (GMT+2);
• – US FOMC Member Mester Speaks at 01:00 (GMT+2);
• – UK Retail Sales (m/m) at 09:00 (GMT+2);
• – German Producer Price Index (m/m) at 09:00 (GMT+2);
• – French Consumer Price Index (m/m) at 09:45 (GMT+2);
• – Canada Producer Price Index (m/m) at 15:30 (GMT+2);
• – US FOMC Member Barkin Speaks at 15:30 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.