Written by Mixed risk appetite
It has been a tumultuous start to the week, with volatility in financial markets remaining heightened across the spectrum. This appears to be a logical reaction, as investors are trying to balance a number of conflicting issues.
Wednesday’s Fed meeting, speculation about the new Fed chair, this week’s pivotal earnings – featuring announcements from Microsoft, Meta and Tesla on Wednesday, and Apple on Thursday – numerous tariff headlines, and the small but growing possibility of another US government shutdown are among the key issues affecting risk appetite at this stage.
Understandably, commodities remain bid, with gold hovering a tad below its all-time high of $5,111, and most investment houses jumping on the bandwagon with their $6,000 forecasts, partly due to geopolitics (see Iran). That said, silver is stealing the limelight, with a fresh high of $117.73 reached during Monday’s session. It is currently hovering around $110, with the bubble-like price action enduring in a market that is not a total stranger to acute market moves every few years. Notably, silver’s one-month implied volatility has skyrocketed to 85.72, matching the March 2020 surge.
In the meantime, the positive short-term correlation between gold and US equity indices persists, with the S&P 500 steadily climbing since last week’s trough towards its all-time high of 6,998. On the other hand, despite the current positive run – partly on the back of lower yields – the Nasdaq 100 index remains far from its recent highs. A possible rally above the 25,890 level – potentially helped by strong tech earnings this week – could fuel fresh bullish momentum and open the door to a new all-time high.
Dollar weakness lingers, damaged by tariff talk
Following a rather positive start to the new year, the dollar is firmly on the back foot lately. Antipodeans are posting the strongest gains this year, and euro/dollar touched 1.19 overnight, as tariff talks continue to scare investors away from the greenback.
Notably, after Trump’s threat of a 100% tariff on Canadian imports over Canada’s intended improvement in relations with China, the US President overnight announced an increase in tariffs on South Korean products from 15% to 25%, citing dissatisfaction with the lack of implementation of their agreed trade plan.
With the UK preparing for closer trade relations with China, and the EU agreeing on a key trade deal with India, are we on the brink of another trade flare-up as Trump might feel unhappy about his closest trading allies embracing countries he is not overly fond of?
While keeping tabs on international developments, Trump might be forced to address the growing probability of a government shutdown starting on January 31, following last weekend’s events in Minneapolis. The massive $1.12trn package must be approved by the Senate by Friday to keep the Federal government running, but finding the extra seven votes needed to reach the 60 required “yea” might prove very tricky for the Republicans, unless Trump joins the effort.
Dollar/yen stabilizes after Fed’s rate check
A convincing show of force from both the Fed and the BoJ has pushed dollar/yen lower since Friday. The pair is currently trading in the 154.52-154.80 area, with investors pondering their next move. Bulls are hoping that current price action resembles the April 2024 moves, when the drop due to a BoJ intervention proved short-lived, with dollar/yen quickly restarting its ascent towards the highest level since 1990.
By XM.com
