Market Wrap: Gold, Yen, Chinese Stocks ease; investors digest China and UK data

Markets are relatively quiet overnight after the US exchanges were closed for Martin Luther King Day.

The dollar is trading in a narrow range as it holds near its recent multi-month lows, while 10-year US Treasury yields are rebounding off the 3.4% mark once more.

Such price action in the US dollar/yields have left gold exposed to some profit taking after posting fresh cycle highs just shy of $1929.

To be clear, even as the precious metal pulls back from "overbought" conditions, with its 14-day relative strength index now dipping just below the 70 threshold at the time of writing, spot gold is still trading around an 8-month high.

Chinese stocks moderate after economic data dump

Meanwhile, Asian markets have been digesting China data overnight which has grabbed the headlines.

Traders were greeted with relatively encouraging news out of China overnight with Chinese GDP, industrial production and retail sales figures all topping estimates.

However, while the 3% growth for 2022 beat expectations of  2.7%, it was much lower than the “abandoned” target of around 5.5% and President Xi’s hint of at least 4.4% growth.

• Industrial output grew 1.3% from the previous year so much better than the 0.1% consensus figure.
   
• Retail sales shrank 1.8% compared to a predicted drop of 9%.

All in, the data implies a solid starting point for the world’s second largest economy in 2023.

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UK data week kicks off with resilient jobs data

It’s the middle of the month so we get a bunch of UK data, including CPI figures out tomorrow.

This morning saw the release of the jobs report which highlighted the relative strength of both vacancy and redundancy numbers which suggest the impact of the incoming recession may be more modest than in some past slowdowns.

The BoE is likely to raise rates at its meeting in early February and today’s data pushes for a 50bp rate move.

Inflation figures tomorrow may tip the balance with the headline rate expected to remain in double digits.

GBP has risen on today’s report and trades above 1.22 again.

Bulls need to beat yesterday’s high at 1.22893 to take a look at the December top at 1.24506 where sits the 61.8% Fib retracement line from 2022's drop.

The recent formation of the "golden cross" (50-day simply moving average crosses above its 200-day counterpart) may also embolden Pound bulls.

 Eyes on BoJ and more possible tweaks to policy

Speculation has ramped up ahead of the BoJ meeting, with a pivotal decision due tomorrow (Wednesday, 18 Jan).

After its shock announcement in December to change its yield cap on its yield curve control policy, traders have got themselves worked up about more changes.

The bond market in Japan is highly illiquid and barely functioning properly. The rest of the world is hiking rates aggressively while Japan is running hugely pro-cyclical monetary policy. Even domestic inflation is hot and currently running above 3% and set to go higher.

But the BoJ enforcing another change to its yield band or even abandoning the YCC policy all together would be a huge shock to markets.

It would also be a terrible blow to Governor Kuroda, who is sitting in his penultimate policy meeting before his term finishes in early April.

The yen has been bought strongly over the past few months with USD/JPY falling from pre-intervention highs at 151.94.

A bearish channel with a series of lower highs and lower lows has now seen prices hit at the 61.8% Fib level of last year’s rally at 128.174.

Support below comes in around the May 2022 cycle-low at 126.36.

READ MORE:

• Trade of the Week: Yen on high alert with BoJ decision looming

• Week Ahead: USDJPY set for wild Wednesday