US economic data is better than expected, can gold prices withstand it?
Data released by the US Department of Commerce shows that the actual gross domestic product (GDP) in the fourth quarter of 2023 grew by 3.3% year-on-year, exceeding the expected 2% and the previous value of 4.9%. Following the data release, the market believes that the probability of the Federal Reserve cutting interest rates by 25 basis points in March is 50%, a 6.5 percentage point increase from the previous day. London gold remained calm, fluctuating near $2020 per ounce. The US economy's better-than-expected performance in the fourth quarter of 2023 was mainly due to the resilience of consumption. The initial value of real personal consumption expenditure was 2.8% quarter-on-quarter, exceeding the expected 2.5%. High growth in labor market wages and the wealth effect boosted personal consumption expenditure. Starting in the fourth quarter of 2023, market expectations for the Federal Reserve to stop raising interest rates and shift towards rate cuts began to rise. Businesses felt that operating pressures would ease in the future. Non-farm employment increased consecutively in November and December 2023, and the average hourly earnings of non-farm private enterprises increased to 0.44% month-on-month. Rate cut expectations also stimulated the stock market. The US stock market rose sharply in the fourth quarter of 2023, with the S&P 500 index rising by 11.24%, approaching a historical high, and the wealth effect was significant. The continued easing of inflation also contributed to the increase in consumption expenditure. US house rental prices have been falling since the beginning of 2023, and the month-on-month increase in December 2023 has fallen to a near 20-month low. At the same time, prices of goods and services have continued to ease, and the year-on-year increase in the goods price index has approached 0. According to data from the University of Michigan's survey, 1-year inflation expectations fell by 1.1 percentage points in the fourth quarter of 2023. In contrast, the consumer expectation index rose from 59.3 to 67.4 from October to December 2023, and the consumer confidence index rose from 63.8 to 69.7. The resilience of the US economy is evident in the current state of consumption, and the market is currently greatly divided on whether a soft landing will occur. Judging from the current performance of the labor market and the stock market, the economy has not yet shown signs of recession, and the stock market, which serves as an economic barometer, has continued to climb. The Federal Reserve's interest rate hike cycle has ended, and the rate cut cycle is about to begin. Does this mean that the US economy has weathered the worst? The resilience of the US economy is inseparable from economic stimulus policies. Although it is in the Federal Reserve's interest rate hike cycle, the Federal Reserve has not stopped supporting risky areas during this period. In March 2023, banking risks erupted, and the Federal Reserve launched the Bank Term Funding Program to provide low-interest-rate collateralized loans to banks with liquidity pressures, delaying the crisis and making it possible for banks to maintain low-interest-rate fixed-rate collateralized loans. This greatly supported US consumption and the real estate industry in avoiding the impact of the Federal Reserve's interest rate hikes. The cost to the Federal Reserve was that total spending in 2023 exceeded expected revenue by $114.3 billion, a record loss. In a statement on January 24, the Federal Reserve said that the Bank Term Funding Program will end after its expiration on March 11. This means that some liquidity-constrained regional banks will have to turn to other financing channels, financing costs will rise, the vulnerability of regional banks will reappear, and their ability to serve the real economy will decline. The impact of the Red Sea geopolitical event on global trade is still ongoing, and the trade transportation of energy and related products is hindered. If the event continues for a long time, the risk of rising global energy prices will increase. Rising energy prices will significantly increase the possibility of a rebound in US inflation, and the Federal Reserve's rate cut is likely to be delayed until mid-year or the third quarter. The impact of the US high-interest rate policy on the real economy will not only become increasingly apparent but may also last longer than the market expects. The short-term breakdown of rate cut expectations will also have an adverse impact on economic optimism. International gold prices will face some pressure in the short term. This pressure comes from changes in rate cut expectations and the apparent resilience of the US economy. However, the upward momentum on the chart is weak but not gone, remaining above the 60-day moving average. Short-term support is also very obvious, stemming from the potential economic and financial risks brought about by the slowdown in global economic growth and the ongoing geopolitical conflicts. In the long term, the US economy still faces considerable downward pressure, and the Federal Reserve's monetary policy will shift within the year. International gold prices may remain upward in the medium to long term.
Time:
2024-01-28 14:47
Data released by the US Department of Commerce shows that the real gross domestic product (GDP) grew by 3.3% year-on-year in the fourth quarter of 2023, exceeding the expected 2% and the previous value of 4.9%. Following the data release, the market estimated a 50% probability of the Federal Reserve cutting interest rates by 25 basis points in March, a 6.5 percentage point increase from the previous day. London gold remained relatively stable, fluctuating near $2020 per ounce.
The better-than-expected US economic performance in the fourth quarter of 2023 was mainly due to the resilience of consumption, with the initial value of real personal consumption expenditure at 2.8% quarter-on-quarter, exceeding the expected 2.5%. High wage growth in the labor market and the wealth effect boosted personal consumption expenditure. Starting in the fourth quarter of 2023, market expectations for the Federal Reserve to stop raising interest rates and shift towards rate cuts began to rise. Businesses felt that operating pressures would ease in the future. Non-farm employment increased consecutively in November and December 2023, and the average hourly earnings of non-farm private enterprises increased to 0.44% month-on-month. Rate cut expectations also stimulated the stock market, with a significant rise in the US stock market in the fourth quarter of 2023. The S&P 500 index rose by 11.24%, nearing a historical high, with a clear wealth effect.
The continued easing of inflation also contributed to the increase in consumption expenditure. US house rental prices have been declining since the beginning of 2023, with the month-on-month increase in December 2023 falling to a near 20-month low. Meanwhile, prices of goods and services continued to ease, with the year-on-year goods price index approaching 0. According to data from the University of Michigan's survey, one-year inflation expectations fell by 1.1 percentage points in the fourth quarter of 2023. In contrast, from October to December 2023, the consumer expectation index rose from 59.3 to 67.4, and the consumer confidence index rose from 63.8 to 69.7.
The resilience of the US economy is evident in the current state of consumption, and the market is currently highly divided on whether a soft landing will occur. Judging from the current performance of the labor market and the stock market, there are no signs of a recession, and the stock market, an economic indicator, continues to climb. The Federal Reserve's interest rate hike cycle has ended, and the rate cut cycle is about to begin. Does this mean that the US economy has weathered its most difficult period?
The resilience of the US economy is inseparable from economic stimulus policies. Although the Federal Reserve's interest rate hike cycle is ongoing, its support for risky areas has not stopped. In March 2023, banking risks erupted, and the Federal Reserve launched the Bank Term Funding Program (BTFP) to provide low-interest collateralized loans to banks under liquidity pressure, delaying the crisis and enabling the banking sector to maintain low-interest fixed-rate mortgages. This significantly supported US consumption and the real estate sector in avoiding the impact of the Federal Reserve's interest rate hikes. The cost to the Federal Reserve was that total spending in 2023 exceeded expected revenue by $114.3 billion, a record loss. In a statement on January 24, the Federal Reserve said that the BTFP will end after its March 11 expiration date. This means that some liquidity-constrained regional banks will have to turn to other financing channels, raising financing costs and reintroducing the vulnerability of regional banks, reducing their ability to serve the real economy.
The geopolitical events in the Red Sea continue to affect global trade, hindering the transportation of energy and related products. If the events continue for an extended period, the risk of rising global energy prices will increase. Rising energy prices will significantly increase the possibility of a rebound in US inflation, and the timing of the Federal Reserve's rate cuts will likely be delayed until mid-year or the third quarter. The impact of the US high-interest rate policy on the real economy will not only become increasingly apparent but may also last longer than the market expects. The short-term breakdown of rate cut expectations will also negatively impact economic optimism.
International gold prices will face some short-term pressure from the change in rate cut expectations and the apparent resilience of the US economy. However, the upward momentum remains weak but not completely gone, staying above the 60-day moving average. Short-term support is also quite evident, stemming from the potential economic and financial risks associated with the slowdown in global economic growth and the ongoing geopolitical conflicts. In the long term, the US economy still faces significant downward pressure, and the Federal Reserve's monetary policy will shift within the year. International gold prices are likely to remain upward in the medium to long term.
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