Bonds Edge Up on Fed Rate-Cut Bets, Gold Slips: Markets Wrap

(Bloomberg) — Bonds gained and equities steadied after benign US inflation data reinforced expectations that the Federal Reserve will cut interest rates this year, helping calm markets unsettled by concerns over AI disruption. Gold traded below $5,000 an ounce.

Government bonds rose in Australia and New Zealand, and Treasury futures were steady as traders continued to fully price in a Fed cut in July and a strong likelihood of a move in June. US inflation data lifted Treasuries on Friday, with the 10-year and the policy-sensitive two-year yields dropping five basis points. There will be no cash trading in Treasuries on Monday as the US is closed for the Presidents’ Day holiday.

The yen weakened 0.2% against the dollar, while Japanese bond futures edged higher as slower-than-expected economic growth damped bets on Bank of Japan rate hikes.

The broader MSCI Asia Pacific Index for equities was flat, hovering near its record high levels after gaining about 11% this year. That started a week marked by Lunar New Year holidays. Mainland China will be closed all week and trading shuts early in Hong Kong on Monday.

The moves indicated some stability for markets after the S&P 500 notched two consecutive weekly declines driven by uncertainty over the disruptive impact of AI on businesses. Some of that pressure eased after data on Friday showed the US consumer price index rose 0.2% in January, the smallest gain since July, and traders priced in higher chances the Fed will ease.

“Overall, this won’t change Fed policy, but it will ease the path towards a cut in rates sooner rather than later,” said Neil Birrell at Premier Miton Investors.

That backdrop is raising the focus on reports such as ADP private payrolls data Tuesday and the minutes from the Fed’s January meeting on Wednesday for a fresh read on the economy and how policymakers are assessing the balance between employment and inflation, after pausing their easing cycle last month.

Fed Bank of Chicago President Austan Goolsbee said the central bank can cut rates further if inflation is on track to reach its 2% target, but that’s not currently the case.

“Right now we are not on a path back to 2%. We’re kind of stuck at 3%, and that’s not acceptable,” Goolsbee said Friday on Yahoo! Finance.

Following the moves in Treasuries on Friday, yields on 10-year government bonds in Australia fell four basis points to 4.70%, while yields of similar maturity in New Zealand edged lower to 4.44%.

What Bloomberg strategists say…

Global equities are likely to retreat as the fracturing AI outlook drags down megatechs and sectors vulnerable to disruptions. Stock declines will help bonds extend their rallies.

— Garfield Reynolds, MLIV Team Leader. For full analysis, click here.

Elsewhere, precious metals — assets that have rallied alongside stocks this year — slipped. Gold dipped below $5,000 an ounce, as traders booked profits from a gain in the previous session, spurred by mild US inflation data.

The dollar was steady, while Bitcoin traded around $68,300 after swinging over the weekend. Oil was little changed as traders monitored geopolitical risk before talks between the US and Iran are expected to resume on Tuesday. Silver fell as much as 3.6%.

With markets in China closed this week, liquidity is thinner than usual. Demand for precious metals in the country has been frenetic in recent months, prompting authorities in the retail hub of Shenzhen to issue a stark warning against “illegal gold-trading activities,” ranging from apps offering leverage to retail investors to online live streams promoting bullion sales.

Meanwhile, shares of Alibaba Group Holding Ltd. dipped as much as 3.1% in Hong Kong after the US added the tech firm to a list of companies that aid the Chinese military — before withdrawing the update minutes later without explanation.

In India, the central bank tightened rules for loans taken by firms that undertake proprietary trading in shares and commodities and offer leverage to clients, the latest measure aimed at reducing speculative market activity in the South Asian nation.

Corporate Highlights:

Warner Bros Discovery Inc. is considering reopening sale talks with rival Hollywood studio Paramount Skydance Corp. after receiving its hostile suitor’s most recent amended offer, people with knowledge of the matter said. New Zealand infant formula distributor a2 Milk boosted first-half earnings and raised full-year revenue guidance as sales in China continue to strengthen. Shares rose. A group led by Macquarie Asset Management will buy Qube Holdings Ltd. in a deal worth around A$11.7 billion ($8.3 billion). Australian vintner Treasury Wine Estates Ltd. reported lower-than-expected revenue, citing US supply chain difficulties and adverse consumer trends in China. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 1:02 p.m. Tokyo time Japan’s Topix fell 0.5% Australia’s S&P/ASX 200 rose 0.3% Euro Stoxx 50 futures were little changed Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1867 The Japanese yen fell 0.2% to 153.07 per dollar The offshore yuan rose 0.2% to 6.8873 per dollar Cryptocurrencies

Bitcoin fell 0.5% to $68,473.46 Ether rose 0.3% to $1,962.91 Bonds

Japan’s 10-year yield was unchanged at 2.210% Australia’s 10-year yield declined four basis points to 4.70% Commodities

West Texas Intermediate crude was little changed Spot gold fell 1% to $4,990.28 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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