Fears of inflation continue to creep!

Eurozone inflation held steady according to Tuesday’s data release, as was projected last month. This is showing a break in what is likely to be a temporary and sharp spike in consumer prices. Prices in the EU rose by 0.2% for the month of January, and 0.9% year-over-year, which was basically in line with analyst expectations according to a flash estimate from Eurostat, the EU statistics office.

Even though prices are likely to spike going forward, it still is believed that it is very unlikely to prompt the ECB to tighten policy anytime soon, as the spike is considered temporary and inflation is likely to fall sharply towards the end of the year as the “honeymoon phase” of the reopening wanes. In fact, it is anticipated that inflation will stay well below the ECB’s target for years after. With that being the case, headline inflation could certainly rise further in the next few months, but it should be thought of as transitory.

During the day on Tuesday, Australia’s central bank affirmed its pledge to keep interest rates at historic lows, despite the fact that there has been massive selling as of late, driving yields higher. The Reserve Bank of Australia Gov. Philip Lowe suggested that he did not expect to meet the central banks inflation and employment objectives until 2024, signalling that the cash rate will stay on 0.1% for a significant amount of time. Despite that commitment, Australian bonds did selloff with the 10-year futures contract implying a yield of 1.72%, compared to a yield of 1.66% on Monday.

Figures due to come out on Wednesday are anticipated to show GDP in Australia grew 2.5% in Q4, on top of a 3.3% jump during the previous quarter. Economists generally expect the RBA to extend its quantitative easing programme targeting longer-dated bonds by another AUS$100 billion to help achieve its goals. Gov. Lowe repeated that the RBA was committed to the three-year yield target of 0.1%, while adding that it would purchase more bonds as needed to support that target.

Gold markets edged up early on Tuesday, after sliding to their lowest level in 8.5 months as Treasury yields in the United States started to ease, offsetting pressure from a stronger US dollar. Spot gold was up 0.3% early in US trading, reaching as high as $1728 after originally falling down to the $1706 level. Gold futures have risen 0.6% at the same time.

Benchmark US Treasury yields have eased off a one-year high hit last week, while the US dollar index has held rather close to a four-week peak. The strength of the greenback is increasing the bearish pressure on gold markets, but eventually, fears of inflation could strengthen the idea of money flowing into the gold market, as traders will begin to focus on massive amounts of stimulus coming into the market. As things stand, gold markets are hoping for stabilisation at best.