US tax bill passes through the House, with debt fears boosting Gold

European equities are on the rise, with the DAX leading the push higher on easing debt market fears in the US and Japan. Overnight inflation data out of Japan had brought concerns of another push higher for bond yields amid a record high in both the 30Y and 40Y this week. However, despite the Japanese core CPI inflation metric rising to a two-year high of 3.5%, we saw Japanese yields fall back which helped ease concerns and lift the Nikkei 225. Notably, this highlights that much of the recent sharp upside seen in yields has come around auctions, with a lack of demand seeing prices surge higher like they did for the US 20-year sale on Wednesday. This highlights why traders will likely put increased emphasis on the importance of these auctions going forward.

The latest UK retail sales data provided the fourth consecutive monthly gain, with the 1.2% month-on-month rise representing the joint highest figure in 11-months. This strength has been largely driven by food stores, with a 3.9% rebound in sales overshadowing the 0.7% decline in non-food stores. This morning also saw a welcome announcement that energy bills will drop 7% in July, as Trump’s efforts to drive down energy prices brings benefits for UK consumers. Coming hot off the heels of the recent jump in UK inflation, this will come as a welcome development for those hoping to see the BoE lower rates beyond the single 25bp cut priced for the remainder of this year.

Gold prices are on the rise once again today, as the growing debt concerns continue to help lift non-fiat assets. With the dollar trading below the 100-mark, haven demand appears to be flowing into precious metals rather than the greenback. Notably, with the debt concerns building off the back of the House passing of Trump’s tax and spending bill, we are seeing support for gold in both positive and negative days for equity markets. That bill is expected to raise the expansion rate of the deficit by 34%, adding $3.8 trillion to the US national debt over the next decade. Thus, with yields on the rise, markets appear to be focusing on the debt concerns revolving around this bill rather than the benefits for businesses and consumers alike.