Bonds Asia: Market risk aversion persists, gold closes slightly higher

March 30, Guolian Minsheng Securities released a research report stating that current market expectations for the Federal Reserve to raise rates again this year have quickly heated up, but the firm believes the actual probability of further rate hikes is relatively low. Despite the renewed concerns about inflation, the U.S. labor market has already started to weaken, and the rise in oil prices lacks the key foundation to continue transmitting to inflation: on the supply side, the United States’ energy self-sufficiency rate has increased; on the demand side, the economy is relatively weak and fiscal stimulus is tapering off, and the wage-inflation spiral mechanism has also not formed. The firm pointed out that historical experience shows that for the Federal Reserve to begin raising rates, it needs strong employment and stable inflation expectations to provide support; the current conditions do not match. Rate hikes would increase the risk of “K-shaped” economic divergence, hit AI investments and lower- and middle-income groups, and may shift the “stagflation” trade toward “recession.” Guolian Minsheng Securities added that to restart rate hikes within the year, multiple conditions must align, including geopolitical conflicts pushing oil prices to remain at elevated levels, fiscal expansion opening up demand transmission, and changes in the policy stance of the Federal Reserve’s leadership, among other factors, but the difficulty of meeting them all remains high at present.

　In addition, Monetary Policy Analytics analyst Derek Tang said that Federal Reserve officials “are very much hoping not to see inflation expectations rise,” but the problem is that “they don’t know how close they are to the critical point.” The Iran war further exacerbates this risk. Rising oil prices and food prices directly affect consumers’ day-to-day experience, making it easier to push up short-term inflation expectations. However, there is currently no evidence that expectations have risen systemically—according to the University of Michigan’s March consumer survey, short-term inflation expectations have increased somewhat, but long-term inflation expectations remain moderate. Even so, despite an increase in hawkish signals, some economists still believe that rate cuts this year are not out of the question. Weakness in the job market provides some basis for rate cuts: in February, nonfarm payrolls fell by more than 90,000, and the unemployment rate rose to 4.4%. Natixis’ chief U.S. economist Christopher Hodge said, “At the beginning of this year, the economy simply lacked strong momentum,” and he still expects that there will be further rate cuts this year.

　Data to watch today include the Eurozone March Economic Sentiment Index, the final reading of the Eurozone March Consumer Confidence Index, and the initial March CPI year-over-year rate estimate for Germany.

　Gold/US Dollar

　Last Friday, gold traded with an upward bias and closed slightly higher on the day. The spot price was trading around 4526. In addition to short-covering providing some support for the exchange rate, risk-averse sentiment sparked by lingering tensions in the Middle East also provided some support for gold. However, rising expectations that the Federal Reserve will raise rates limits gold’s room to rebound. Today, pay attention to the pressure around 4600; support is around 4450.

　US Dollar/Japanese Yen

　Last Friday, the U.S. dollar/yen rate traded with an upward bias, breaking through the 160 level and reaching a 20-month high; the spot price was trading around 159.80. The main reason supporting the exchange rate’s rise is that the U.S. dollar index broke through the 100.00 level on support from market demand for safe-haven buying and expectations that the Federal Reserve will raise rates. However, expectations of rate hikes by the Bank of Japan and concerns that the Bank of Japan will intervene in the FX market again limit the upside space for the exchange rate. Today, pay attention to the pressure around 160.50; support is around 159.00.

　US Dollar/Canadian Dollar

　Last Friday, the U.S. dollar/Canadian dollar rate traded with an upward bias, closing slightly higher on the day; the spot price was trading around 1.3890. The main reason supporting the exchange rate’s rise is that the U.S. dollar index broke through the 100.00 level, supported by demand for safe-haven buying and expectations of the Federal Reserve raising rates. In addition, weak economic data from Canada also provided some support for the exchange rate. However, the continued rise in crude oil prices limits the upside space for the exchange rate. Today, pay attention to the pressure around 1.4000; support is around 1.3800.




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