Gold drops further

Partly a result of rising real yields

Chart of the Day

Though nominal yields across the world mostly dropped back on Friday, the sharp rise in real yields over the course of the week contributed to the further fall in gold prices, which dropped another 2.6% on Friday.

Macro

The effects of the latest US stimulus were clear in the monthly income data - it showed income growth accelerated to 16.1% YoY in January, while consumption growth rose to 6.8% YoY. Not bad considering lots of services are still unavailable.

In China, the official manufacturing PMI fell to 50.6 in February, while the services PMI decreased to 51.4. It seems growth is barely rising, but recall that this is the holiday period and the data can be affected by that even with seasonal adjustments.

Interesting to note US PCE core inflation rose to 1.5% in January. That’s the one the Fed pays most attention to.

Markets

US yields dropped back on Friday, but still jumped over the course of the week.

Changes in developed market 10-year bond yields in the past month ranged from a rise of 14bp in Japan to a gain of 80bp in Australia - though the yield there was down sharply in early trading for this week as the CB engaged in record bond purchases.

The sharp moves in bond yields caused the MOVE index of implied bond market volatility to jump to 75.7, its highest since the first pandemic market crisis.

Non-commercial traders increased their net short position in the USD last week, even as the USD rose.

Traders currently have sharply reduced their long position in the Nasdaq e-mini contract and are now essentially neutral, much like for the S&P 500 one.

The risk-off sentiment caused the USD to jump against the cyclical NZD, AUD and CAD on Friday, after those currencies had held up relatively well earlier in the week.

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