MARKET UPDATE

Asia FX muted as China’s economic goals underwhelm.

Most Asian currencies moved little on Tuesday as China’s economic goals for 2024 failed to liven up markets, while the dollar steadied before more cues on interest rates due later in the week.

Anticipation of more cues on U.S. rates also kept most regional units trading in a tight range, especially as comments from Federal Reserve officials continued to downplay expectations for early cuts.

Chinese yuan muted as National People’s Congress underwhelms

The Chinese yuan moved little on Tuesday, with losses in the currency held back by a strong midpoint fix from the People’s Bank of China.

Sentiment towards China saw little improvement after Beijing set a 5% GDP target for 2024, the same as 2023. But with a lower fiscal deficit target for the year, investors questioned just how achievable the target seemed, now that the economy no longer had a lower base for comparison from the COVID-19 pandemic.

 

Gold prices sit close to record highs.

Gold prices moved little in Asian trade on Tuesday, remaining within sight of record highs as uncertainty over the global economy and some bets on early interest rate cuts drove a sharp melt-up in bullion.

But the rally now appeared to have paused before more signals on the U.S. economy, particularly from comments from the Federal Reserve and key labor market data due later in the week.

Spot gold rose 0.2% to $2,118.59 an ounce, while gold futures expiring in April steadied near $2,126.75 an ounce by 00:40 ET (05:40 GMT). Both instruments settled above $2,100 an ounce for the first time ever on Monday, and were now close to record highs of $2,135.72 an ounce for spot and $2,130.20 an ounce for futures.

Demand for the yellow metal was boosted by some indicators that the U.S. economy was cooling, while signs of a recession in Europe and Japan, coupled with underwhelming growth forecasts from China, also factored into safe haven demand.

 

Spring Budget may awaken sterling.

Sterling’s meandering performance against the dollar could get a jolt this week as Britain’s finance minister faces pressure to cut taxes, but with the gilt turmoil of September 2022 still fresh in the mind, prudence may be the order of the day.

The pound has traded in a narrow $1.2501-$1.2825 range against the dollar since the middle of November, while volatility is close to its lowest since February 2020, just before the COVID-19 pandemic struck markets.

But Jeremy Hunt’s Spring Budget on Wednesday might cause sterling to stir, as the ruling Conservative Party’s hoped-for fiscal space that was meant to bring large tax cuts before a probable 2024 election might be less than previously thought.

Britain’s economy fell into recession in the final quarter of 2023, while the market’s repricing of Bank of England (BoE) rate cuts has seen borrowing rates move higher in recent weeks, limiting Hunt’s fiscal headroom.

“We don’t have as much of a positive outlook as we had at the end of the Autumn Statement,” Hunt told the Sunday Telegraph.

And with former Prime Minister Liz Truss’s disastrous mini-budget not yet out of the rear-view mirror, markets are acutely aware of what can happen when the government promises sweeping, unfunded tax cuts.

 

 

 

 

 

 

 

 

 

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