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On January 13, it was reported that the Guangdong Financial Regulatory Bureau recently launched a crackdown on unapproved "financial holding" companies. On January 12, the Guangdong Financial Regulatory Bureau published a list of 61 business entities within its jurisdiction (excluding Shenzhen) that were using terms such as "financial holding" or "financial group" without approval, or whose names contained the word "financial holding," requiring them to apply for deregistration or change their names and business scope within three months.On January 13th, Jeff Schulze, Head of Economics and Market Strategy at ClearBridge Investments, stated that while investors may cheer the CPI report as further evidence of cooling inflation, the Federal Reserve will likely remain on the sidelines due to the short time lag between the data and the government shutdown, and the inherent uncertainty. This report is positive for risk assets and increases the likelihood of the Fed providing additional monetary policy support in 2026.January 13th - Nick Timiraos, the Feds mouthpiece, stated that the December Consumer Price Index (CPI) is unlikely to change the Feds current wait-and-see attitude, as officials are likely to want to see more evidence that inflation is stabilizing and gradually declining before cutting interest rates. The Fed has lowered its benchmark interest rate in the last three meetings, most recently in December, even though inflation stopped declining last year. Officials lowered rates due to concerns about a potentially larger-than-expected slowdown in the labor market. For Fed officials to resume rate cuts, they may need to see new evidence that labor market conditions are deteriorating or that price pressures are easing. The latter may require at least several more months of inflation data to become apparent.January 13th - Morgan Stanley Wealth Management Chief Economic Strategist Alan Zentner commented on US inflation: "Weve seen this before—inflation hasnt picked up again, but it remains above target. Cost pass-through from tariffs remains limited, but housing affordability hasnt improved. Todays inflation report is insufficient to provide the necessary justification for the Federal Reserve to cut interest rates later this month."On January 13th, Valentin Malinoff, Head of G10 FX Research and Strategy at Crédit Agricole, believes that given the markets muted reaction to the CPI data, traders should buy the dollar when it falls from current levels. The muted market reaction further confirms that many negative factors related to the Federal Reserve have already been priced into the dollar, as expectations of two rate cuts in 2026 have already been priced in. It is also worth noting that even with the recent decline in the dollar due to heightened concerns about fiscal dominance, the market has not anticipated the timing of Fed rate cuts. Therefore, the dollars real interest rate advantage relative to the euro and pound is not fully reflected and is undervalued.

Copper Beats Gold This Week With Fears of A Rate Rise

Haiden Holmes

Feb 17, 2023 11:44

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Gold prices declined on Friday as stronger-than-expected U.S. inflation statistics and hawkish statements from Federal Reserve officials stoked fears of more interest rate rises, while copper prices outpaced commodity markets this week due to confidence towards China.


The U.S. producer price index inflation increased more than anticipated in January, according to statistics released on Thursday. This follows a report on the consumer price index that indicated inflation in the world's largest economy remained sticky.


James Bullard, president of the Federal Reserve Bank of St. Louis, stated that the central bank might resume raising interest rates at a more rapid pace and raised the possibility of a 50 basis point increase in March.


Meanwhile, Loretta Mester, president of the Cleveland Fed, stated that interest rates would likely rise over 5% as the Fed fights inflation, and that the central bank should have increased rates by more than 25 basis points at its February meeting.


The dollar and Treasury rates soared in response to their remarks, as investors flocked to the greenback in anticipation of higher and safer returns. This caused a substantial outflow from gold markets.


Spot gold decreased 0.2% to $1,833.67 per ounce, whilst gold futures declined 0.5% to $1,843.75 per ounce. Prices of the yellow metal were projected to fall between 1% to 1.7% this week, marking the third consecutive week of declines.


The likelihood of rising U.S. interest rates is unfavorable for non-yielding assets such as gold, as it increases their opportunity cost. Increasing interest rates also cause investors to select the dollar as a safe-haven asset due to its higher yields.


Other precious metals declined on Friday. Platinum prices dropped 0.6% to $920.30 per ounce, a three-month low, while silver futures sank 1.2% to $21.448 per ounce, a two-and-a-half month low.


Copper prices declined on Friday but were expected to end the week in the black due to optimism on China and probable supply disruptions.


Copper futures slipped 0.2% to $4.1137 a pound and were expected to rise 2.4% this week, their highest weekly performance since the beginning of January.


Copper was also poised to end a streak of three consecutive weekly losses as China, the world's top copper importer, signaled further stimulus measures to bolster economic development. Earlier this year, China loosened the majority of anti-COVID policies, which bolstered hopes for the nation's economic recovery.


A deteriorating conflict between the government of Panama and international copper miners threatens to halt the country's copper exports, so limiting supply and driving up prices.

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