JAPAN DATA: Offshore Investors Buy Both Local Stocks & Bonds

• Gold traded through and held above the $3,000 level for the first time, reaching $3,002.10 in Asian trading.
• Up over 15% year to date, golds ongoing rally has been fueled by expectations for interest rate cuts, inflation concerns and tariff risks.
• Stockpiles of US gold exchange warehouses recorded their biggest decline in three months, following a three-month frenzy ahead of the implementation of tariffs.
• Yet another major bank has increased their forecast for gold with UBS moving their target to $3,200.
• Indonesia’s President Prabowo inaugurated PT Freeport Indonesia’s gold smelter in East Java on Monday.  The new smelter can produce up to 60 tonnes of gold annually.
• Gold has traded through all key technicals with the major moving averages trending upwards, a key indicator that the bullish momentum is in place. 

In today's Asia-Pac session, TYM5 is 110-21, +0-01+ from closing levels. 

• Cash US tsys are little changed after yesterday’s twist-flattening. Yields finished 3bps higher to 3bps lower, pivoting at the 7-year.
• US tsy yields rose to their daily highs after Retail Sales data was released, with the market focusing more on the stronger control group sales, but the move wasn’t sustained and yields subsequently tracked lower.
• Headline advance retail sales were much weaker than expected in February at 0.2% M/M (0.6% expected, -1.2% prior rev from -0.9%), but strong performances in core categories offset this. The control group sales rose 1.0% vs the 0.4% expected, more than offsetting the downward revision to Jan (-1.0% vs -0.8% prelim).
• Traders reported some spillover from a 6bps fall in Germany’s 10-year rate, driven by some short covering following the significant lift in yields, driven by much easier fiscal policy ahead.
• The focus remains on Wednesday's FOMC policy announcement.

Assistant Governor (Economic) Hunter spoke at the AFR banking summit about how monetary policy can be both forward looking and data dependent given decisions are always made under uncertainty. The bank looks at the signal from data excluding the noise and uses that in determining its outlook which is then analysed under various scenarios and judgement. In February, the focus was on the impact of US policy and scenario analysis was an important part of this assessment.

• “The links between data, forecast and policy sit at the heart of us saying that policy is ‘data dependent’.”
• Hunter said that during times of “heightened uncertainty”, there is more weight put on “real time data” relative to forecasts.
• Hunter noted that it takes 9 to 12 months for a rate cut to have its maximum effect on GDP growth with the response from dwelling investment particularly timely. Inflation takes longer though at around 18 to 24 months due to the stickiness of prices and the indirect effects from a change in monetary policy on employment and wages.
• The RBA’s model also shows that trade responds “relatively quickly” through the exchange rate channel.
• However, consumers’ reaction is “initially small but grows over time” according to RBA modelling. There is some offset from lower debt payments by less interest income and households tend to smooth their spending.
• The RBA believed that Q4 consumption data showed an underlying pickup relative to Q3 with items not impacted by discounting, such as eating out, showing stronger growth as incomes rose. Its business liaison responses were consistent with this.
• See Hunter’s speech here.