The selloff in US sovereign bonds reversed yesterday after a solid demand for the US 3-year bond auction counterweighed a bulk of hawkish comments from Federal Reserve (Fed) members. The Fed members are on the battlefield, fighting the doves. Loretta Mester said there is no rush to cut rates and Neel Kashkari said that the Fed hasn't reached its inflation goal yet. The game is now being played for a May cut, with around two thirds probability attached to it. And there is one thing that keeps the doves resisting: the resurfacing US regional bank worries and a potential commercial real estate crisis. The New York Community Bank Corp plunged another 22% on Tuesday after Moody's downgraded its rating to 'junk'. What's encouraging is that the KBW index gave no reaction to the latest shake, as proof that the Fed has been extremely successful in isolating the banking sector woes with liquidity and stopgap measures. What's worrying is that these measures will expire next month. But what's soothing is that the Fed could use them whenever needed to calm down the market nerves. Investors also bear in mind that the next move from the Fed is most probably loosening of financial conditions – that should help the sector as a whole. And the sole expectation of easing Fed is enough to juice the market's mouth. This is certainly why the New York Community Bancorp's misfortune hasn't triggered a domino effect across the banking sector, and the winds could turn around before a crisis pops in the problematic real estate sector. That's happy news. Happy enough to push the S&P500 index a little higher yesterday as one regional bank extended its weekly losses to 50%. In the bright spot was Palantir – a data analytics company, jumped 30% after announcing AI-related revenue earlier than thought. Their commercial revenue soared by 70% compared to the same time last year as the deal flow rose to a level that no one expected before 2025. Elsewhere, Snap fell 32% in the afterhours trading after disappointing Q4 revenue, but it's too small to care, and BP, in London, flirted with the 200-DMA after revealing higher than expected profits, and saying that it will buyback $1.75bn worth of shares each quarter in the H1, more than the $1.5bn buyback announced a quarter earlier. Worth noting: BP posted strong first results under its new CEO, giving the company a certain margin to stick to its strategy of shifting toward renewable energy sources rather than boosting investment in fossil fuel and gas (for which they are being forced by investors because there is more money in fossil fuel and gas). And if things go wrong, BP can scrap its promise to do good to the planet and go back to doing good to investors pockets. Hope is life The CSI 300 index is up for the 3rd straight session on broad-based stimulus measures and anticipation for more as Xi Jinping is being briefed on 'the heck is going on' in the financial markets. To be true, I would love to be a fly in that room to see how officials are going to tell Xi that his radical change of mindset is responsible for the mess, and not the lack of money, or love for Chinese companies. Confidence is low and the economy is fragilized by a deepening property crisis, falling population and deflation. China is expected to post a deeper y-o-y deflation when it reveals its latest CPI figures tomorrow. The market's response may vary depending on investors' perceptions of the effectiveness of the stimulus measures. A deeper than expected deflation could boost the stimulus expectations and help stocks recover – in which case it could be an early sign of returning confidence. OR it would smash the latest stock market gains and leave the Chinese authorities desperate for support. Pick your side.

Gold price is consolidating the Tuesday turnaround early Wednesday. US Dollar, Treasury bond yields keep the red amid Chinese stimulus optimism.   Daily technical setup points to range trade for Gold price at around $2,030. Gold price is consolidating the solid rebound from the weekly low of $2,015 early Wednesday. The US Dollar (USD) extends its pullback from multi-month highs, in the wake of retreating US Treasury bond yields and a risk-friendly market environment, motivating Gold buyers to gather pace before the next push higher. Gold buyers pause ahead of more Fedspeak Risk sentiment remains in a sweeter spot so far this Wednesday's trading, as investors cheer a raft of measures by the Chinese regulator to support share prices after the market plunged to five-year lows. Markets are paying limited attention to the reduced bets for aggressive rate cuts from the US Federal Reserve (Fed) coupled with strong US economic data and hawkish Fedspeak, as the US Dollar is bearing the brunt of the broader market optimism and negative US Treasury bond yields. The US Treasury bond yields are extending their pullback, as markets anticipate a big auction of the US 10-year Treasury bonds later on Wednesday. These factors are helping Gold price stay afloat. Amid a lack of top-tier economic data releases from the United States (US), the focus will continue to remain on the Fedspeak, sentiment on Wall Street and developments in the Chinese markets. Traders look forward to Chinese inflation data due this Thursday for fresh signs on the state of the economy. Fed policymakers Barkin, Bowman and Kugler are expected to speak in the latter part of the day. On Tuesday, Philadelphia Fed President Patrick Harker said that the "economy is on track for a soft landing." Markets are currently pricing in a roughly 20% chance of a cut in March, the CME Group's FedWatch Tool shows, compared with a 68.1% probability at the start of the year. Meanwhile, the odds for a May Fed rate cut now stand at 65%. Gold price technical analysis: Daily chart As observed on the daily chart, Gold price has been struggling around the $2,030-$2,035 region. That level is the confluence of the 21-day and 50-day Simple Moving Averages (SMA). The 14-day Relative Strength Index (RSI) is trading neutral at the 50 level, suggesting a lack of clear directional bias for Gold price. If the rebound finds legs, the immediate powerful resistance for Gold price is seen at the $2,050 psychological level. The next critical supply zone for the bright metal is seen at around $2,065. On the downside, Gold sellers need to seek a decisive close below the abovementioned $2,035-$2,030 area. Further down, a test of the $2,000 threshold if the $2,010 round figure gives way.

Overview: The US dollar is consolidating its the two-day surge since the jobs data at the end of last week. The Reserve Bank of Australia did not rule out additional rate hikes, and although the derivatives markets do not think it is likely, the Australian dollar is the best performer in the G10 today with a small gain. An unexpectedly strong German factory orders report failed to help the euro much and it languished near yesterday's low. Sterling finally broke out of its $1.26-$1.28 range and is also moving sideways in a roughly $1.2530-65 range. Signs that Chinese officials are stepping up their support for the equities saw the CSI 300 jump around 3. 5% and the Hang Seng surged by a little more than 4%. Among the large markets, Japan, South Korea, and Australia fell. Europe Stoxx 600 is flat to firmer and US index futures are narrowly mixed. European benchmark 10-year yields are mostly around a basis point higher, while the US 10-year Treasury yield is practically flat near 4.16% and the two-year yield is off a couple of basis points to 4.54%. The US quarterly refunding begins today with $54 bln three-year notes on sale. Gold is consolidating in a narrow range around $2025, yesterday's settlement. March WTI is trading quietly in the upper end of yesterday's range near $73. Asia Pacific It seems more than ironic that so many observers have underscored the problems of China's real estate market, which indeed is real, while the US commercial real estate woes drove down the US regional bank share index by 7.2% last week alone, the most in eight months. At the same time, China is faulted for weak consumption, though on a per capita basis it has more than doubled in the past ten years and (according to their figures rose 7.2% in 2023), while Japan's household spending has fallen for the past five years, including, as we learned earlier today a 2.5% decline in December on a year-over-year basis (vs. -2.0% median forecast in Bloomberg's survey). On a month-over-month basis, household spending fell by 0. 9%. One of the factors that is depressing Japanese household spending is the wages have not kept pace with inflation. Real labor earnings have also fallen for five consecutive years, including the 1.9% year-over-year decline reported earlier today for December 2023 (-1.5% expected). Excluding bonuses and overtime, base pay rose 2% year-over-year. As widely expected, the Reserve Bank of Australia left is cash target rate unchanged at 4.35%. Despite the weakening of the economy and moderating price pressures, it was too early to reverse last November's quarter-point hike. In fact, the RBA kept the door ajar to further tightening. The updated forecast show that officials expect core inflation to return to the midpoint of the 2%-3.0% target range in 2026 (trimmed mean measure was at 4.2% in Q4 23). The market sees a later start and a less aggressive path of RBA easing than most of the G10 central banks. The futures market now has the first cut fully discounted in September, but has it almost priced in for August. The market now is pricing in about 50 bp of cuts this year down from almost 70 bp at the end of last year. The dollar set a new high for the year in North America yesterday near JPY148.90. It has held below JPY148. 80 today. We had seen resistance near JPY149.20. The 10-year US Treasury yield has risen by around 37 bp since the post-FOMC low last Thursday (4. 80%). It has approached 4. 20%, which capped it last month. Similarly, the two-year yield spiked to 4. 48% last month. We thought the high could be closer to 4.55%. Lower US yields today have seen the greenback consolidate. It has held above JPY148.35. Initial support is near JPY148.25 and then around JPY147.70. The Australian dollar was sold to about $0. 6470 near the end of the European session yesterday, which took out the lower Bollinger Band (~$0.6485). It settled slightly in the band. We saw chart support closer to $0.6450. The Aussie recovered to about $0.6520, stopping shy of yesterday's high near $0.6525. We suspect North American participants will try again. The Chinese yuan is trading higher for the first time in three sessions, helped by the dollar's broader stability and s sharp jump in Chinese 10-year bond yield (six basis points, the most in seven months, to 2. 45%) and a surge in equities. A Chinese sovereign wealth fund indicating it would expand the range of its equity holdings and ETFs. The PBOC set the dollar's reference rate at CNY7.1082 (CNY7.1070 yesterday). The average in Bloomberg's survey was for CNY7.2025 (CNY7.2053 yesterday). Europe Aggregate eurozone retail sales fell by 1.1% in December and were off 0.8% year-over-year. It was the...

MARKETS The recent downward trend in U.S. stock indexes, driven by diminishing rate cut expectations, is showing signs of stabilizing as U.S. bonds calm down. Investor sentiment was pressured on Monday as hopes for a March interest-rate cut by the Federal Reserve diminished. Earlier in the year, expectations of Fed policy easing had fueled gains in stock indexes. However, despite the recent fluctuations, major indexes are still close to their record high, suggesting that while rate cut expectations and earnings reports may drive short-term fluctuations, the overall market sentiment remains relatively optimistic, with investors closely monitoring both economic data and corporate performance. The U.S. bond market rebounded, with 10-year yields falling precipitously, providing some welcome eye candy for U.S. stocks and general interest rate-susceptible sectors of global capital markets. Indeed, with yields falling ahead of the upcoming $42 billion sale of 10-year Treasury bonds, dealers are positioning for good demand after a solid start to this week's ramped-up issuance sizes. Despite cautious remarks from Federal Reserve officials, including Fed Bank of Minneapolis President Neel Kashkari and Cleveland Fed President Loretta Mester, indicating that the central bank is not in a hurry to cut rates, market sentiment is holding up. Still, with fewer rate cuts in the market pipeline, the onus will return to corporate performance to do the heavy lifting again. Investors also showed optimism in U.S.-listed Chinese stocks, speculating that China may take measures to support its markets. OIL MARKETS The recent session saw oil futures closing higher following the U.S. Energy Information Administration's (EIA) announcement regarding OPEC+ production cuts. These cuts, which deepened to 2.2 million barrels per day (bpd) from January to March, are expected to result in global inventory draws throughout the year's first quarter. However, the EIA forecasts that global oil inventories will gradually build up again during the remainder of 2024, with an average increase of 100,000 bpd in the final three quarters. This trend is expected to continue into 2025, with an average increase of nearly 500,000 bpd for the year. According to the same Washington WatchDog, projections indicate that U.S. oil production will plateau in 2024. Initially, domestic production is anticipated to reach 13.3 million barrels per day (bpd) in February but is expected to decline through the middle of the year. The United States is not expected to surpass its production record of 13.3 million bpd until February 2025. This forecast suggests a temporary peak in oil production followed by a subsequent decline before reaching record levels again in early 2025. CHINA MARKETS According to sources described as "people with knowledge of the matter" who spoke to Bloomberg (and it's worth noting the reliability of such sources, particularly concerning signalling market trends in China), authorities, including the China Securities Regulatory Commission, were reportedly scheduled to brief top officials including President Xi" on market conditions and the latest policy initiatives" as soon as Tuesday. Following this news, in a devoted fashion, both Mainland and Hong Kong shares experienced significant gains. Small-cap stocks, in particular, saw notable increases, with the CSI 1000 index posting its most substantial rise since 2008 and mercifully putting the brakes on a truly disconcerting selloff. The CSI 1000 index plunged more than 6% lower on Monday alone and concluded a seven-session downturn that amounted to a staggering 20% decline. The recent actions taken by Chinese authorities, including claims of "malicious short-selling" and restrictions on trading instruments, reflect a desperate attempt to stem the alarming decline in the stock market. While intended to restore confidence and stabilize markets, these measures underscore a more profound confidence crisis in President Xi Jinping's leadership. Both domestic and international investors are increasingly wary of Xi's unpredictable policies and their potential impact on the economy and financial markets. Geopolitical tensions and economic challenges only exacerbate the situation, further eroding trust in the leadership. The fundamental issue lies in the perception that Xi's governance is characterized by unpredictability and inconsistency. Investors fear that sudden policy shifts or geopolitical maneuvers could lead to significant losses, undermining the attractiveness of Chinese markets. Until there is a tangible demonstration of stability and predictability in policy formulation and implementation, it is unlikely that investor confidence will fully recover, regardless of the short-term measures taken by authorities. Addressing the credibility deficit the Chinese government faces, particularly with overseas investors and domestic consumers, is crucial for restoring confidence in the economy. While fiscal and monetary policy may be necessary to address economic challenges, providing discourse to the perception of arbitrary policy measures while demonstrating a willingness to accept responsibility for the situation can be equally important. A clear and transparent communication strategy from Beijing, acknowledging the concerns and uncertainties faced by various stakeholders, could help rebuild trust. This could involve efforts to enhance regulatory transparency, improve corporate governance standards, and provide...

AUD/USD partially reversed the recent steep pullback. The RBA left its OCR unchanged, as expected. The RBA's Bullock sounded somewhat hawkish at her press conference. Finally, some respite for the Aussie dollar came in the wake of the RBA's widely anticipated decision to keep its Official Cash Rate (OCR) unchanged on Tuesday. Indeed, the Reserve Bank of Australia maintained a hawkish stance by keeping interest rates unchanged at 4.35%, in line with expectations. However, it left the possibility open for a potential interest rate hike in the future. The Statement on Monetary Policy (SoMP) showed the RBA slightly lowered its inflation projections and anticipates both indicators to remain below 3% by Q4 2025. Additionally, the RBA reduced its GDP growth forecasts across the forecast period, largely due to a dimmer short-term outlook for consumer spending and housing investments. At her press conference, Governor Bullock diverged from the anticipated shift towards a dovish stance and emphasized that addressing inflation remains incomplete, highlighting that the current inflation rate is deemed excessively high. Bullock underscored a neutral stance by stating, "We are neither committing to nor dismissing any course of action." Despite her assertive stance, market participants persist in pricing in a 50 bps reduction in interest rates for this year, with the initial cut fully anticipated by the August meeting. Additionally, price action around the pair followed another positive session of the greenback, albeit this time advancing marginally, while the inconclusive price action in copper prices and the intense corrective retracement in iron ore seem to have limited the upside potential of AUD on Tuesday. In spite of the daily recovery, AUD/USD keeps navigating its sixth consecutive week in negative territory, shedding around four cents since December 2023 peaks around 0.6870.  AUD/USD daily chart AUD/USD short-term technical outlook Further losses may drive the AUD/USD to revisit its 2024 level of 0.6468 (February 5), ahead of the 2023 low of 0.6270 (October 26). The breach of the latter might cause a test of the round level of 0.6200 to appear on the horizon prior to the 2022 low of 0.6169 (October 13). On the plus side, there is immediate barrier at the key 200-day SMA at 0.6572 ahead of the temporary 55-day SMA of 0.6643. The breakout of this zone may inspire the pair to go for the December 2023 high of 0.6871 (December 28), followed by the July 2023 top of 0.6894 (July 14) and the June 2023 peak of 0.6899 (June 16), all just ahead of the critical 0.7000 milestone. The 4-hour chart indicates some consolidation in the immediate term, paving the way for a dip to 0.6452 once 0.6468 is cleared. On the bullish side, 0.6610 is an immediate hurdle ahead of the 200-SMA at 0.6664. The surpassing of this zone indicates a possible progress to 0.6728. The MACD retreats deeper into the negative zone, and the RSI approaches the 40 zone. View Live Chart for the AUD/USD

I have written that the commercial real estate market could be the next thing to pop in this bubble economy and that could lead to the next major financial crisis. But you don't need to worry. Federal Reserve Chairman Jerome Powell assured us that everything is fine. During a 60 Minutes interview aired Sunday, Feb. 4, Powell conceded some smaller and regional banks with "concentrated exposures" in commercial real estate "are challenged."  But he said he wasn't concerned about these problems spreading into the broader banking system as the subprime crisis did in 2008. "I don't think there's much risk of a repeat of 2008," he said, adding, "I do think it's a manageable problem." Powell sounds a lot like former Federal Reserve Chairman Ben Bernanke who insisted in 2007 that problems in the subprime mortgage sector were "contained." On March 28, 2007, Bernanke told Congress everything was fine.  The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes," Bernanke said. "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. He repeated this mantra on May 17 during a financial conference. We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. Bernanke's remarks were reflected in the August 2007 FOMC statement. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy. Sounds a lot like Powell and Company today, doesn't it? Of course, we all know what happened in the year after Bernanke's assurances. I sure do hope Powell's promises aren't equally empty.