US GDP is rising, but there are the first signs of a slowing economy. Inflation in Tokyo set a new record

According to the US Commerce Department, gross domestic product (GDP) grew by 2.9% in the latest quarter, less than the 3.2% quarter before but more than the market estimate of 2.6%. But a more detailed report shows signs of slowing growth. While consumer spending maintained a solid growth rate, most of the increase in consumption came at the start of the fourth quarter. Retail sales fell sharply in November and December. Business spending on equipment declined last quarter and is likely to remain low due to lower commodity demand. Futures markets are estimating a 25 basis point hike next Wednesday with a 95.8% probability and suggesting that the Fed’s overnight rate will be 4.45%, lower than the 5.1% rate that Fed officials had previously projected.

US durable goods orders jumped by 5.6%, but a more detailed report showed that business investment declined for four months. By some measures, US manufacturers are already in recession territory. They have cut production in response to the slowdown in new orders and may make further cuts if the economy continues to decline. Rising interest rates have been a major source of recent weakness. Higher borrowing costs are discouraging consumers from spending and businesses from investing.

Initial US jobless claims were 186,000, lower than the projected 203,000. The US labor market remains resilient, even though several big tech giants have been cutting jobs in recent days.

Renowned investor and Scion Asset Management hedge fund manager Michael Burry suggests that the current growth in the stock market is a mirage and very difficult times lie ahead. The investor draws parallels from September 2000 to early 2003 (the dot-com bubble era and the aftermath of 9/11). Between September 2001 and April 2002, the S&P 500 Index managed to rise twice. But then a four-month decline followed.

A Reuters poll this week showed that markets expect the ECB to pause rate hikes in the second quarter of 2023 once the deposit rate reaches 3.25%. Although some analysts are confident that the ECB will bring the rate up to 4% by the summer, after which it will take a pause.

The bullish trend in gold continues. Yesterday there was another new seven-month high, right at the 1950 level. Gold has an inverse correlation to US government bond yields and the dollar index. As US yields fall as the Fed nears a potential policy change, this positively affects precious metal prices.

Oil prices rose about 2% on positive US economic data and expectations of higher global demand as China, the biggest oil importer, reopened its economy. OPEC+ will meet as early as February 1, where the cartel is likely to confirm the current levels of oil production, which may trigger further price growth. But an excessive growth of oil prices may cause a new round of inflationary pressure, and this is despite the fact that the interest rates are already high. So rising oil prices right now are not good for the global economy.

Asian markets traded yesterday without a single trend. Japan’s Nikkei 225 (JP225) decreased byv0.12%, and China’s FTSE China A50 (CHA50) was not trading. Hong Kong’s Hang Seng (HK50) was up by 2.37%, India’s NIFTY 50 (IND50) lost 1.25%, and Australia’s S&P/ASX 200 (AU200) was not trading yesterday due to Australia Day. On Friday, most Asian markets continued to rise as higher-than-expected economic growth data supported risk appetite.

Tokyo’s core consumer price index increased from 3.9% to 4.3% year-over-year. This is the highest rate of inflation in 41 years. This indicator is considered a leading indicator of inflation nationwide. Rising inflation in the country is expected to eventually end the bank’s ultra-soft stance, but traders are unsure when such a move might occur, leaving the outlook for Japanese stocks clouded with uncertainty.