Poor U.S. data, consumer spending slows

【US data may indicate that the Fed policy will not be too hawkish】

The data show: PPI inflation fell, which is what the Fed had hoped for. But the economic weakness seen in the retail sales data will not be viewed as good news. However, both data point to a less hawkish monetary policy, so that should support stocks and weaken the dollar. Of course, the market is a bit volatile right now. But we see a clear direction for lower US 2-year yields and a lower dollar.

【Retail sales decline will lead to slower consumer spending in 2023】

The retail sales report showed declines in 10 of 13 retail categories last month, including autos, furniture and electronics. Sales at gas stations fell 4.6 percent as prices fell steadily. Economists expect a drop in retail sales in late 2022 to lead to slower consumer spending in 2023, leading to slower economic growth. Americans remain nervous even as a strong job market supports consumers. Savings rates are near record lows and credit card balances are surging. A separate report on Wednesday showed that business and wholesale inflation slowed more than expected in December, boosting hopes that price pressures are cooling in the economy.

【Retail sales are shrinking, strengthening the expectation that the Fed will slow down the pace of interest rate hikes】

Retail sales shrank sharply in December, reinforcing expectations that the Federal Reserve will further slow down the pace of interest rate hikes. The monthly rate of overall and core retail sales in the United States both shrank sharply by 1.10% in December, which were significantly lower than expectations and previous values. The overall retail monthly rate hit the largest drop since December 2021. The Fed slowed the pace of rate hikes to 50 basis points in December after raising rates four times in a row by a steep 75 basis points. The Fed is expected to further slow rate hikes to 25 basis points at its first policy meeting of the year (January 31-February 1).

【Divergent views on when the policy shifted】

Inflation in the United States may have passed its peak and is showing a clear downward trend. Many worry that the pace of rate hikes the Fed has pursued so far in response to high inflation could drag the U.S. economy into recession, and hope the central bank will slow further or pause rate hikes altogether this year, with pro-productivity measures in place once the ultimate goal is met. stimulus policy.

Markets seem to think the Fed will not only slow down rate hikes this year, but may reverse them at least in part. According to CME Group's ""FedWatch"" tool, investors are all but certain that the Fed will raise rates at least two more times this year, with cuts likely by the end of the year. But some institutions have expressed a hawkish bias towards the Fed.

【The Federal Reserve may keep interest rates stable】

Whether the Fed sees it appropriate to cut rates later in 2023, or keep rates steady - as the Fed's cments suggest - will further influence. Historically sensitive to U.S. real yields. However, despite some disconnects in the relationship in recent months, the market expects it to recover as 2023 progresses.

【Gold's macro outlook turns bullish in 2023】

Market analysis believes that the macro outlook for gold will turn bullish in 2023 and will continue until at least 2026. Gold miners are increasingly discussing the benefits of investing in copper, with data from Equity Research confirming that some veteran gold miners have moved into the base metal. However, by income breakdown, gold will remain the mainstay until at least 2026. Second, the macro backdrop is turning bullish for gold. From a longer-term perspective, market analysis also confirms that gold can be an effective portfolio diversification tool, and gold will be seen as an effective portfolio diversification tool in 2023, with outflows of ETF funds that weigh on gold prices in 2022 is fading.