Geopolitics' impact on gold, U.S. economic challenges, and Japanese consumer sentiment

Is gold still a haven amid geopolitical tensions? 

Despite hopes of avoiding a global recession, geopolitical risks continue to impact economies and financial markets. As a result, safe-haven assets like gold attract broad interest. 

We analyzed how gold prices responded in the months following significant geopolitical events. For example, after a recent incident where Iran attacked Israel, gold prices have not shown a consistent trend.  

However, following a Hamas strike in October 2023, gold prices have generally trended upward. Ongoing geopolitical tensions are likely to continue influencing the demand for gold as a safe investment. 

Japanese consumer sentiment remains strong

Consumer spending in Japan, particularly in retail sales, has been robust since early 2022. To analyze this trend further, we used the {{nofollow}}Macromill weekly consumer survey, which provides regular updates on Japanese consumer sentiment. The data show that, despite some fluctuations, sentiment has remained consistently above the average since 2022. 

However, the index has yet to reach +1 standard deviation above the average. This means that while sentiment is positive, it hasn’t reached a level of optimism that would be considered exceptionally high. This could still signal encouraging prospects for Japan’s economic future and support the Bank of Japan’s efforts to normalize monetary policy.

Diminishing expectations for Fed rate cuts

The release of 'unexpectedly hot' CPI data earlier this month dispelled any doubts about the Federal Reserve cutting rates soon. Our chart shows that the market has lost hope for a rate cut at the next FOMC meeting in May, with a similarly low probability for June, at around 20%. 

Initial expectations of three rate cuts in 2024, starting in March, has not materialized and now short-term market expectations are increasingly pessimistic. The probability of a rate cut by the end of the first half of the year is now less than 50%. However, a cut in the autumn still appears likely.

US government bonds remain uncertain

Inflation remains higher than expected, delaying expectations for interest rate cuts. This makes investments in government bonds more uncertain.  We conducted a study on 10-year government bond returns in developed countries to look at how different bond yields affect bond values, considering factors such as duration and convexity. The resulting table can help investors understand how bond yield fluctuations may impact bond values.

US commercial real estate still challenging

US commercial real estate (CRE) continues to face significant challenges, even though many expect that a {{nofollow}}recession can be avoided. This is particularly important for {{nofollow}}regional banks that are quite exposed to CRE loans. To monitor the situation, we use weekly ‘back to work barometer’ indices that track how many people are going back to offices in major cities compared to before the pandemic. The latest numbers show that office occupancy is still much lower than it used to be, with rates about half of what they were before Covid-19.

Bitcoin ‘halving’ and impact on market prices

Roughly every four years, the number of new bitcoins that miners earn for adding transactions to the blockchain is cut in half. This event is known as “halving” and the next one is scheduled for 20 April. By reducing the number of new bitcoins, the supply decreases. 

You might expect that with fewer bitcoins available, their price would go up. But when we look at what happened after the last three halving events, the results show varied impacts on Bitcoin’s price. 

This chart tracks how Bitcoin’s price performed after the last three halving events. The outcomes were quite different each time, demonstrating that even with a decrease in supply, it’s hard to predict exactly how Bitcoin’s price will be affected.