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14 February 2025

Ukraine Optimism Offsets Trade Worries

Inflation still hot – The much-anticipated U.S. inflation figure came out hotter than expected, throwing a wrench into hopes for near-term rate cuts. January’s consumer price index (CPI) rose 3.0% year-over-year, slightly above the expected 2.9%. The “core” CPI, which strips out food and energy, came in even stronger at 3.3% versus the anticipated 3.1%—marking the hottest inflation reading in months. These numbers bolster the case for monetary policy hawks who argue the Federal Reserve should hold off on cutting rates. Fed Chair Jerome Powell testified before the House Financial Services Committee, reiterating that the central bank is in no rush to cut rates, prioritising the fight against inflation. However, President Trump took to social media, pushing back and insisting the U.S. needs lower interest rates. The U.S. dollar index initially spiked on the inflation report but later gave up gains to trade lower. Meanwhile, the 10-year Treasury yield climbed to around 4.65% following the data, keeping limited support to the greenback.

Stabilisation factor – The oil price slump gained momentum as President Donald Trump took his first major step toward brokering an end to Russia’s war in Ukraine, just weeks after his inauguration. Trump took to social media to announce that he and Russian President Vladimir Putin agreed to start negotiations immediately, adding that he would be calling Ukrainian President Volodymyr Zelenskiy to inform him of the conversation. A potential ceasefire could further weigh on oil prices if Trump pushes to roll back sanctions on Russia’s energy sector. On a more fundamental level, the market’s depressed sentiment has been fuelled by rising U.S. crude stockpiles and hawkish comments from Fed Chair Jerome Powell signalling that the Fed isn’t rushing to cut interest rates. Higher interest rates tend to slow economic activity and weaken oil demand.

Steady climb – Wall Street reacted to the latest American CPI data with a knee-jerk selloff, but S&P 500 has found support and is still consolidating near its recent highs. A key factor? Reports that President Trump had a “productive” phone call with Russian President Putin about ending the Russia-Ukraine war, offering investors a glimmer of optimism, which would offset concerns with rising global trade tension, notably with the new administration’s reciprocal tariffs. On the corporate side, the fourth-quarter earnings season rolls on. So far, more than 69% of S&P 500 companies have already released their results, and the majority are delivering pleasant surprises—over 75% have topped Wall Street’s forecasts, according to FactSet.

7 February 2025

Trade Spat Casts Shadow Over Sentiment

Record high – Gold prices surged to yet another all-time high in this week’s trading, driven by strong safe-haven demand as investors flock to the yellow metal amid rising uncertainty. Market nerves remain on edge as President Trump’s unpredictable and potentially disruptive policy moves keep traders guessing. Meanwhile, China-U.S. trade tensions are heating up, with both nations escalating tariffs and taking further hostile business actions against each other this week. The EU may not be spared either after Trump doubled down on his plan to hike tariffs on the block, adding another layer of uncertainty to global trade dynamics. Experts fret that this “elevated trade policy uncertainty” could drag on economic growth in the coming months, primarily by dampening business investment and weakening market confidence. Goldman Sachs has warned that the eurozone economy could suffer a “sizable hit to activity” from the rise in trade tensions. With geopolitical and economic uncertainty mounting, gold continues its record-breaking rally, proving once again that when uncertainty reigns, gold shines.

Mixed feelings – U.S. stocks have recouped their recent losses as they strive to hold onto this year’s limited gains. While earnings from Alphabet and AMD fell short of expectations, Big Tech found support thanks to a strong rally in Nvidia. Alphabet’s stock took a hit, sliding nearly 7%, after its fourth-quarter cloud revenue came in below estimates. The shortfall raised concerns that the company’s aggressive AI investments may take longer than expected to pay off. However, Nvidia emerged as a winner, climbing more than 5% as investors bet that the chipmaker could benefit from the ongoing AI spending spree. Overall, a retreat of the 10-year Treasury yield to its lowest level since December 2024 further added support to the market’s rebound.

Sluggish demand – Crude oil prices tumbled to their lowest levels of the year as fears of weakening demand rattled investors. The drop comes after China announced retaliatory tariffs on U.S. crude oil imports, while U.S. stockpiles climbed for the second straight week. WTI crude hit its lowest point since December 31, 2024, as tensions between the top two consumers escalated. With China—the world’s largest oil importer—facing economic headwinds, concerns are mounting over a potential slowdown in global energy demand. On Tuesday, China’s State Council Tariff Commission announced a 15% tariff on U.S. coal and liquefied natural gas (LNG), along with a 10% duty on American crude oil, farm equipment, and certain vehicles, set to take effect next week. Meanwhile, fresh data from the U.S. Energy Information Administration (EIA) showed a larger-than-expected rise in U.S. crude inventories, reinforcing fears of weakening demand and adding further pressure to oil markets.

31 January 2025

AI Race and Safe Haven in Tandem

Tech correction – US tech stocks stabilised after plunging on Monday due to the sudden rise of Chinese artificial intelligence (AI) app DeepSeek. The open source solution sent chipmaker Nvidia into a nosedive, triggering a broader selloff across the market. The turbulence followed DeepSeek’s claim that its AI model was developed at a fraction of the cost of its competitors, prompting investors to rapidly reassess their bets on AI and the ROI on the costly infrastructure, and casting uncertainty over America’s AI dominance. President Donald Trump called the moment “a wake-up call” for the US tech industry while downplaying concerns over the breakthrough, affirming that the US will remain a leading force in AI. For traders following the price action, unless the Nasdaq sinks below its 2-month lows around 20600 the index is merely consolidating near its historic high. The market’s eventual resilience would prove the optimism surrounding AI investments that has fuelled much of the US stock market’s surge over the past two years.

ECB easing – The European Central Bank (ECB) delivered its fifth rate cut on Thursday, trimming interest rates by 25 basis points as it walks a tightrope between rising inflation and sluggish growth. After months of cooling, inflation in the eurozone is heating up again, hitting 2.4% in December – its third straight increase – just as the effects of cheaper energy start to fade. At the same time, the region’s economy is stuck in neutral. Fresh data showed zero growth in the final quarter of 2024, falling short of economists’ modest 0.1% forecast and following a 0.4% expansion in the previous quarter. Commenting on the latest move, ECB President Christine Lagarde didn’t sugarcoat the situation, admitting that the euro area economy is “set to remain weak in the near term.” In other words, while inflation is picking up, growth is taking a nap – leaving the ECB with the tricky job of keeping both in check. FX-wise, the single currency is far from being out of the woods as the US Fed stayed put with its interest rates unchanged, broadening the differential between the two economic entities.

Shining again – Gold is back on its feet after dragging its feet for the past three months. The price has surged to a new all-time fuelled by strong safe-haven demand and technical buying. Investor jitters over the new US administration’s trade and foreign policies – especially the potential for fresh tariffs – are keeping the marketplace on edge. Meanwhile, the Federal Reserve wrapped up its FOMC meeting on Wednesday with a clear signal: interest rates are staying unchanged for the foreseeable future. Policymakers acknowledged that “inflation remains somewhat elevated,” but Chair Jerome Powell downplayed any shift in stance, brushing off the change in wording as mere “language clean-up.” Powell steered clear of commenting on how President Trump’s policies might influence the Fed’s decisions. Markets, in turn, took the Fed’s statement and Powell’s press conference in stride, showing little reaction.

24 January 2025

Trump 2.0 May Complicate Fed Policy Course

Technical recovery – The euro’s current rebound is likely to be due to profit-taking after it hit a 26-month low earlier this year. General sentiment remains downbeat as the ECB keeps pushing in the loosening direction while the Fed is taking their feet off the pedal. President Christine Lagarde and other senior officials expressed support for additional rate cuts, potentially weakening the shared currency in the short term. Markets have already priced in another 25bp cut next Thursday, the fifth of the easing cycle, with expectations that interest rates will drop to 2% by year-end. Adding insult to injury would be the looming U.S. tariffs championed by Trump 2.0 elevating the risk of higher inflation in a fragile economy. Despite Lagarde’s reassurance that the central bank is “not overly concerned” about external factors, the market always finds a way to play in a cynical and pragmatic way and may keep the lid on the exchange rate.

Verbal escalation – Gold is surfing on renewed geopolitical tensions following Mr Trump’s inauguration. Stakes in the eastern front have been raised as the new U.S. president looks to boast his ‘art of the deal’ by settling the war in Ukraine in a swift manner. He delivered on his own social media platform Truth Social this week an ultimatum to his Russian counterpart Vladimir Putin saying that Russia should strike a deal or face even tougher economic consequences. Warnings of extending sanctions on all Russian exports to the United States and secondary penalties for nations conducting business with Moscow may push the latter to a corner if a deal fails to materialise, exacerbating the divide between the East and the West. The precious metal’s solid run lately in spite of the dollar’s strength signals growing demand for its safe haven status.

Clash of the titans – The U.S. dollar has given back its recent gains as traders await a new catalyst from the central bank’s interest rate decision next week. To spice things up, Powell & Co’s cautious stance puts the Federal Reserve on a potential collision course with the new assertive president. Donald Trump has increased pressure on the Fed to lower borrowing costs in a significant manner. As far as the market is concerned, the Fed is expected to keep its benchmark rate steady at 4.25-4.5% next week, in the wake of three consecutive cuts since September. However, policymakers have adopted a more conservative approach for the year especially as Mr Trump’s plans to raise tariffs, cut taxes, and tighten immigration policies could complicate efforts to lower inflation to the 2% target.

10 January 2025

UK Worries Weigh on Cable

Mini crisis – The pound has plunged to its lowest level in over a year, while UK borrowing costs have reached a 16-year high. The latest bond market sell-off reflects investors’ growing concerns over UK assets and most importantly the contrasting signal between higher gilt yields and a falling currency shows investors’ doubt over the country’s economic outlook and the health of its public finances. The market turmoil has added pressure on Chancellor Rachel Reeves, who faces increasing scrutiny, made an uncommon move by issuing a public statement for the second consecutive night, emphasising her “iron grip” on public finances. But despite government efforts to stabilise the markets, borrowing costs continue to climb. Addressing an urgent question in the House of Commons, Treasury Minister Darren Jones assured there was “no need for an emergency intervention” in financial markets. However, market participants still have the memory of the mini-budget crisis under the former prime minister Liz Truss in September 2022.

Seasonal demand – Brent crude is staging a steady recovery to its 3-month high as the market demand has shifted its focus to colder weather than the last two winters, in both Europe and the United States, which could boost consumption of heating oil. A stronger U.S. dollar and an unexpected rise in U.S. stockpiles have not deterred buyers from shying away, with technical buying-the-dips compounding the seasonal factor. There are high hopes that the recent weak CPI print in China would spur more stimulus to tackle the country’s chronic economic headache. In the meantime, a surge in travel across China ahead of the Lunar New Year has improved demand expectations, adding to rationales that would help the price stabilise in the near term.

Bullish consolidation – The December U.S. jobs report was a blowout for the outgoing administration with the unemployment rate dropping to 4.1%. The print was a confirmation that would lessen the worry about the impact of high interest rates on the job market. While the market participants await further rejuvenation of the economy under Trump 2.0, the earnings season is kicking off next week with Q4 and full-year results from Wall Street’s big banks. Investors anticipate impressive numbers as trading volumes have significantly exceeded typical fourth-quarter levels across all asset classes, fuelled by a growing participation from retail traders amid a bull run in both stock and cryptocurrency markets.

3 January 2025

Investors Remain Confident about U.S. Growth

Parity in sight – The market is waiting for fresh catalysts in the first week of 2025 and the upcoming U.S. nonfarm payrolls might just give participants enough a reason to stay alert. A strong reading could be the straw that broke the euro’s back as the single currency is inching towards the parity threshold, last seen in November 2022. The market consensus is that Trump’s policies will sustain support for the greenback, as tax reliefs will put upward pressure on inflation and make further interest rate cuts less easy to justify, while tariffs against the eurozone would be seen as rubbing salt in the wound, undermining its growth outlook. 

Steady recovery – Gold is striving for a comeback after it stabilised around its recent low of $2,600. The precious metal gains strength thanks to its safe-haven appeal, as investors turn their attention to President-elect Donald Trump’s upcoming administration, set to begin on January 20. Anticipated policies from Trump, including higher import tariffs and lower taxes, are expected to benefit gold. More specifically, elevated tariffs could spark a global trade war, while reduced taxes may increase inflationary pressures in the United States. Gold often thrives in times of economic uncertainty as a safer asset and performs well during periods of rising inflation, as investors use it to hedge against price increases. Meanwhile, 10-year US Treasury yields fall to approximately 4.5%, reducing the opportunity cost of holding non-yielding assets like gold, enhancing their attractiveness.

Hesitant start – Stocks began January with a volatile trading session as investors locked in profits from notable 2024 winners like Apple and Tesla. The much-anticipated “Santa Claus” rally, which typically boosts stocks during the final five trading days of the year and the first two of the new year, failed to materialize as the market preferred the certainty of gains other than the promise of higher watermarks, leaving the S&P 500 with four straight days of losses into the year’s end—its first such streak since 1966. Still there is high hope that the rally will stay put as pro-growth and inflationary policies in the U.S. may keep fuelling the stock market.

20 December 2024

U.S. Fed Pours Cold Water Before Christmas

Renewed pressure – The euro is hovering near its 4-week low as traders price in a potential acceleration in the interest rate differential across the Atlantic. The ECB is caught between a rock and a hard place after its U.S. counterpart adopted a hawkish stance in the last meeting. In the meantime, inflation in the eurozone has become steady though not subdued with the November reading coming in below expectations at 2.2%. The market expects the central bank to stay the course on reducing borrowing costs in an effort to stimulate growth. While the Fed might hold back from another increase in January 2025, the ECB is expected to reduce interest rates at every meeting until June 2025, leaving the single currency struggle against other majors.

Bullion dilemma – On the one hand, the prospect of lower global interest rates would make the non-yielding metal more appealing by lowering the cost of opportunity. On the other, a relatively strong U.S. economy and an unusually hawkish Fed might keep Treasury yields high, leaving gold in the shadows. How far the retracement may go would reflect bids on the mighty dollar as its recovery across the board so far has put the precious metal under pressure. The price action is consolidating as liquidity starts to dry out going into Christmas, but it would be too soon to call for a bearish reversal.

Close call – Stock markets saw sharp pullbacks after the Federal Reserve commented on a ‘closer call’ on its loosening policy. As widely anticipated, the U.S. central bank lowered its key interest rate this Wednesday by 25 basis points, the third consecutive cut to a target range of 4.25%-4.5%, back to the level where it was in December 2022. However, policymakers struck a cautionary note on their next move. Inflation has been holding steadily above target against the backdrop of uncertain economic growth on a global macro level, prompting the Fed to slow down on its monetary easing path, with indications that there probably would be only two small cuts in 2025. The decision has given risk assets such as tech stocks which have been front-running the yield curve a reason to take a breather, sending the S&P and Nasdaq indices off their recent peaks.

 
13 December 2024

Anticipating Another U.S. Rate Cut

Dollar recovery – The U.S. dollar is bouncing back across the board as traders reposition ahead of the last Federal Reverse rate decision of the year. The market overwhelmingly anticipates an additional 25-basis-point rate cut in the FOMC meeting next Wednesday. However the persistence of sticky inflation might put the brakes on the pace of future rate cuts, while the European Central Bank and the Bank of England might trim their respective rates faster in the face of stalling economies. The prospect of this differential could prove particularly beneficial for the greenback. 

Gold consolidation – Bullion has pulled back from its 3-week high as the market digests a crucial regime change in the Middle East. The collapse of the Assad dynasty last weekend left a void in an increasingly turbulent region and exposed Iran, its former ally, prompting traders to ponder major stakeholders’, namely the U.S. and Russia and their proxies’ next move on the geopolitical chessboard. As a result, heightened uncertainty may keep safe haven seekers busy as the new year could reserve additional surprises. In the meantime, news of physical buying by the People’s Bank of China may offer further support.

S&P high watermark – The U.S. index is still holding on to its all-time high as investors bet on a downward trajectory of the interest rates. The latest Bureau of Labor Statistics data revealed that the Consumer Price Index (CPI) rose by 2.7% year-over-year in November, slightly higher than October’s 2.6% annual increase, but in line with economists’ forecasts. Participants in the rally have so far shrugged off economists’ view of Trump’s proposed policies—such as imposing high tariffs on imports, cutting corporate taxes, and restricting immigration—as potentially inflationary. The optimism may live on as long as evidence shows a lack of an upside surprise in inflation data.

06 December 2024

Mixed Job Report Sends U.S. Dollar into Retreat

Dollar pullback – The latest U.S. job data showed a rise of the unemployment rate from 4.1% to 4.2% in November. The greenback has been pulling back as traders braced for the last nonfarm payrolls of the year. Before the report, the market had priced in a 70% chance of a rate cut on December 18, but that probability has now climbed to 87%. The prevailing sentiment is that Fed officials are already inclined toward a rate cut, and it would take a much stronger report to change their stance. The market now expects 90 basis points of easing next year, up from the previous expectation of 82 basis points, offering fragile support to the dollar in the process.

Oil stabilisation – WTI crude steadied around its 3-month low after the OPEC+ group which includes Saudi Arabia and Russia postponed its planned production increase amid sluggish global demand, notably due to China’s economic struggle and competition from non-member producers like Brazil and Argentina. The recent lows also corresponds to the trough seen in December 2021, indicating the market’s concern about the lingering supply and demand imbalance. Market participants may look to thread the needle with their year’s end positioning as the price walks on thin ice.

Trump effect – Bitcoin’s value soared past the $100,000 mark after Trump announced plans to nominate former Securities and Exchange Commission (SEC) commissioner Paul Atkins to lead the regulatory body. Atkins is widely regarded as more cryptocurrency friendly than the incumbent Gary Gensler. The president-elect had earlier vowed to position the U.S. as the “crypto capital” and his celebration on social media with messages like “Congratulations Bitcoiners” and “You’re welcome!” would draw more public attention to the digital asset. Traders have started to bag some profits but sentiment supported by the trend remains overwhelmingly positive.

29 November 2024

Final Push as Markets Look to Regain Volatility

Calm before volatility – Trading volumes have thinned around the U.S. Thanksgiving holiday this week but market lethargy may give place to renewed volatility in a busy data-driven week. Investors are likely to take advantage of the last nonfarm payrolls on Friday and reallocate their books before going into the Christmas holiday season. Until then weak tech earnings and the Nvidia sell-off could continue to be the theme that has been driving major U.S. indices. 

Oil uncertainty – Oil prices stabilise as traders look for signals from the upcoming OPEC+ meeting on the 1st of December. The market widely expects production cuts from January. However, artificial restraints on supply may not suffice to lift depressed prices in the current environment. Global fundamentals remain uncertain at best as bidders may be reluctant to hold large positions into the new year with American protectionism looming as Trump is scheduled to retake the reins.

Lost shine – Gold remains under pressure weighed down by the recent recovery of the U.S. dollar across the board. Meanwhile physical investments in China, the precious metal’s No.1 consumer country, have tanked amid growing economic uncertainty and geopolitical friction with the West. The price is hovering above the $2600 mark and trying to find support and now the question is whether bullion’s safe haven status would bring in more inflows in the weeks leading to the year’s end.

22 November 2024

Market Confidence Fuels Tech and Digital Assets

Arms race – Russia missile strikes on Ukraine in response to the use of Western made missiles by its neighbour have triggered another round of escalation in the 1000-day conflict. What worries traders is whether this could open doors for more unprecedented events in the months to come. Safe haven assets like gold and the Japanese yen have held their ground and found renewed interests as market participants look to hedge their risk appetite.

Under pressure – US indices are holding onto their gains as investors anticipate a 25 basis point cut by the Fed at its December meeting. High watermarks in US equities reflect the market’s confidence in its economy, offering better yields in a lower interest rate environment as well as safety backed by the American government. Individual stocks have found a boost from bright quarterly results from the likes of Nvidia, furthering cementing the confidence, so much that even the news of a possible breakup of Alphabet, parent of Google by the US Department of Justice have left the market unfazed.

To the moon – Bitcoin continues to stay well-supported as it pushes its way to the landmark $100,000. Fundamentally, expectations of a more friendly business environment with an end to scrutiny from US regulators, growing popularity in bitcoin ETFs as well as escalations in geopolitical events bringing in more flows are major tailwinds for the digital asset. Technically, the question is who dares to say ‘this is good enough’ and put their money where their mouth is by taking the other side of the trade. Until then the momentum may stay strong.

 
15 November 2024

Risk Assets Push Forward as Trump Secures both Houses

Dream team momentum -The market is on its toes as President-elect Donald Trump taps into personal ties to shape the next government. His comeback may have a large impact as a mix of tax cuts, immigration control and trade tariffs could go through with the blessing of a Republican-controlled Congress. The US dollar’s strength and overall volatility can barely hide expectations of a dramatic shift in US policies.

Euro’s struggle. – Whispers of parity are back in the market, a reminiscence of the energy crisis back in 2022. This time around, investors fear that Mr Trump will be back to take care of his unfinished business with more tariffs. On the ECB’s monetary policy, faster interest rate cuts than in the United States would put the single currency under further pressure.

Crypto president – Bitcoin hitting an all-time high above $90,000 is a telltale sign that traders are embracing the upcoming US administration for the best, and potentially the worst. The crypto industry is betting on a friendlier regime to trigger a broader adoption, leading up to another round of bull market. Meanwhile, outperformance by digital gold compared to altcoins may suggest traders’ hedging of possible escalation in geopolitical disputes.

Tech optimism – Stock market sentiment remains risk-on as a lower interest rate environment compounds the prospect of Republicans’ laissez-faire agenda with tax cuts and looser regulations. Options players are piling into riskier assets notably the technology sector which they believe could reap a massive windfall from Trump’s victory, supporting the current rally.

07 November 2024

The Day After: Global Market Reactions to Trump’s Victory

Donald Trump’s confirmation as the next US president has boosted stocks and assets that are seen as favourable to his administration.  His agenda is set to bolster traditional industries such as construction, infrastructure, and energy. The policies announced by Donald Trump during his campaign were generally seen as inflationary, due to tariffs and onshoring, pro-growth, and as adding to the already burgeoning federal deficit, thanks to proposed tax cuts. How these policies affect the economic backdrop is likely to be one key driver of US stock market returns in the next four years.

In the US, stocks soared last night to record highs with the S&P 500 jumping 2.5% to close at 5,929.04, while the Dow Jones surged 3.6%, reaching 43,729.93. The tech-rich Nasdaq Composite advanced 3% to 18,983.47. The yield on 10-year US Treasury notes rose to 4.435% from 4.411% late on Tuesday.

Stocks in Asia recovered from early losses after US stocks jumped to record levels as investors tried to assess the impact of Donald Trump’s return to the White House on the global economy. The Hang Seng climbed 2% in Hong Kong, and the Shanghai Composite was 2.6% up by the end of the session.

Meanwhile, the Chinese government reported that exports jumped nearly 13% in October compared to a year earlier, the fastest pace in more than two years. However, the Nikkei slipped 0.3% on the day in Japan, reflecting worries over the potential for a revival of trade tensions under a Trump administration.

The FTSE 100 and European stocks pushed higher in the Thursday early morning session as the Bank of England (BoE) is expected to cut interest rates again at noon. Money markets are strongly betting on a 90% probability of a quarter-point cut — that the benchmark rate will fall from its current level of 5% to 4.75%. It is the first announcement since the UK government unveiled their budget last week and comes as CPI inflation and wage growth continue to cool.

Traders are now turning their attention to the US Federal Reserve and Bank of England’s decisions on interest rates later today. The Federal Reserve is also expected to cut interest rates again this evening by 25 basis points, amid a moderating inflation rate and a softening labour market.

However, analysts have warned that it is the return of Donald Trump to the White House, and concerns that he might seek significant influence over the central banks’ policy decisions, that will be the main driver in the global financial markets.

The pound dived against the dollar, following Trump’s claimed victory over Democratic candidate Kamala Harris in the US presidential election. The pound’s decline marks a significant sell-off as traders brace for a shift in US economic policy under the prospect of a second Trump administration. Yesterday the US dollar surged to its largest single-day gain since March 2020, climbing 1.5% against a basket of major currencies.

Gold prices were lower as investors moved away from the safe haven and into assets that could benefit under the new Trump administration, with spot gold currently trading lower at $2,665.00 per ounce. The drop in gold signals a broader market reaction to the US presidential election, which is dominating investor sentiment this week.

The Fed’s outlook to be announced later today, could also influence the direction of gold in the coming weeks, as rising rates tend to weigh on the precious metal.

Oil markets were pressured by the results from the US elections and the latest weekly US oil inventory report from the American Petroleum Institute, with Brent crude futures trading at $71.87 per barrel. Oil prices have shown a dip as markets prepare for the uncertain geopolitical landscape with Trump’s victory.

A new Trump administration would favour domestic fossil fuel producers as he aims to enhance America’s energy security. Approximately two thirds of the exchange-traded fund iShares Oil & Gas Exploration & Production (IOGP.AS) is held in US-listed assets. Trump is also likely to prioritise increased domestic oil and gas production.

04 November 2024

Trading Trump (vs) Harris - Election Anxiety Spikes

The FTSE 100 and European stocks are showing a mixed picture on Monday as traders anxiously await the outcome of the US presidential election, as well as a decision on UK interest rates from the Bank of England on Thursday, which is expected to make a quarter-point cut for the second time this cycle, taking UK interest rates to 4.75%.

The U.S. election could bring unprecedented market swings across various asset classes and will shape the direction of the global financial markets and geopolitics for the next four years, with potential policy changes impacting stocks, commodities, forex, and other assets. Historically, election uncertainty has led to extreme volatility. During the 2020 election, financial markets experienced a $5 trillion fluctuation in market value in the weeks preceding and following the election: the VIX (Volatility Index) jumped by over 50%, and global markets experienced turbulence throughout the election cycle.

Traders around the globe, are closely watching as Kamala Harris, running for the Democratic Party, races against leading former President Donald Trump, the Republican candidate. The outcome of the election will define the policies of the next administration which would have a tremendous impact on economic trends, international trade, and market stability.

The outcome may not be clear on election night or even soon after if the results are close enough to trigger recounts or legal challenges.

This volatility may present both risks and opportunities in the trading environment, therefore it would be prudent for traders to keep their trading accounts sufficiently funded in advance. This will allow them to manage margin requirements effectively, capitalise on potential opportunities, and mitigate any market risks.

Potential Implications and Market Reactions

The race remains neck-and-neck as we approach tomorrow’s vote, and investors have been positioning for the fallout of a victory by Donald Trump.

In the US, Trump would likely shake up the status quo far more significantly than Harris, who has served as President Joe Biden’s vice president for the past four years.

Trump’s focus on fiscal expansion and tariffs which would is expected to trigger higher inflation and would have a strong influence in Treasury and FX markets, as well as risk-on in equity markets favouring US cyclicals. Tax cuts would also be expected as part of Trump’s economic policy.

In emerging markets, the main risk stems from Trump’s plan to enact tariffs, which would weaken their exports and demand for their currencies. Markets are pricing in some of the risks associated with Trump returning to the White House, suggesting that a Harris victory would trigger a bullish move for emerging markets, while factoring in the likely impact of higher taxes on earnings and reinforcement of wider macro forces.

Trump’s tariff plans carry particular risks for China for levies of 60% or more, which will increase pressure on the Chinese economy while the government is already struggling to revive the faltering economy.

Asian currencies including the Chinese yuan and the South Korean won, may also come under pressure with tariff increases. The Yuan’s one-month implied volatility soared to the highest in two years last month.

Developing nations such as South Korea and Taiwan, with high exposure to the US and strong reliance on Chinese inputs could also face pressures from such an escalating trade war, as they would be affected by increased costs and supply-chain disruptions.

Trump’s statements on the US commitment to alliances such as the North Atlantic Treaty Organisation and to Ukraine’s efforts to defeat Russia, have weighed on local bonds of certain eastern European countries and lifted Ukraine’s dollar debt on speculation that Trump’s election may push it to cut a ceasefire deal with Russia.

What if the Result is Contested?

The counting of the votes may only be the start of a new process that financial markets will struggle to interpret.

Markets are expected to be volatile not only on the night of the election, but potentially in the days or weeks to follow. Declarations and rumours around key swing states like Pennsylvania will be particularly important and algo-driven markets could be particularly sensitive to such risk. 

The greatest risk for global markets to consider would be if the election result is bitterly contested afterwards by the ‘losing’ party. Because the polls remain so close, the election creates a great deal of uncertainty with traders trying to price for a binary outcome. Key policies, particularly around trade, tariffs and the outlook for the US debt, will be greatly affected by the outcome and so the results will drive price action. 

The biggest uncertainty facing the market is if the result is contested. It took days to declare Biden officially the winner in the 2020 election, while Trump contested the result almost until the January inauguration. The highest risk is that neither side is willing to concede, leading to a high-stakes legal roller coaster, which could in theory last not days but weeks. This outcome has the largest potential for a negative risk catalyst in the global markets.  

Oil prices heading for their biggest weekly gains in over a year

04 October 2024

After a night of intense air strikes by Israel on Beirut, oil prices are expected to remain volatile in today’s session. Oil prices posted their biggest one-day rise in almost a year, surging by more than 5%.

Brent crude futures rose 0.4% to around $77.90 a barrel. Weekly prices have experienced their biggest weekly percentage point gain since early 2023. Traders are concerned that potential supply disruptions may occur after President Joe Biden suggested that American officials were “discussing” whether to support an Israeli attack on Iran’s oil facilities.

In other news around the world, traders are watching the US jobs report due to be released at 13:30 BST today. With inflation declining, the crucial parameter now is the job market. According to consensus estimates reported by Bloomberg, the US economy is expected to show 150,000 jobs were added last month up from 142,000 reported in August, while the unemployment rate remained flat at 4.2%.

Traders are trying to forecast how aggressively the Federal Reserve will proceed with interest rate cuts. In the above scenario, the Fed will probably cut interest rates by a quarter of a percentage point at its next meeting in November, smaller than its half-point cut in September. In Asia, China’s stimulus package announced recently, continued to support markets higher into Friday’s trading, with the Hang Seng index in Hong Kong closing the session 2% higher. In Japan, the Nikkei 225 also closed 0.2% higher this morning, following a volatile week of trading caused by central bank announcements.

17th September 2024

Pound Rally Against US Dollar Continues ahead of Interest Rate Decisions.

The European markets as well as the FTSE 100 are on the rise today, as investors are focusing on key central bank decisions later in the week from the Bank of England and the US Federal Reserve.

The US Federal Reserve is expected to move towards cutting interest rates more aggressively as it meets today and tomorrow.

A 25 basis-point reduction by the US Federal Reserve would be a pivotal move, as investors hope that the decision could lower borrowing costs for companies and improve overall earnings growth. A more aggressive 50 basis points cut on the other hand would be the biggest single rate cut in 16 years triggering concerns of economic trouble ahead.

The likelihood of a 25 basis-point reduction fell to 37% from 50% at the end of last week, according to the CME FedWatch Tool.

The Bank of England will also announce its interest rate decision this Thursday. The market expectations are leaning towards holding rates at their current level.

The pound has rallied against the dollar ahead of these major interest rate decisions, with the US currency trading near its lowest levels of the year.

 

12th September 2024

Risk Appetite Returning to Global Markets

Risk appetite has returned to the markets after the world’s largest technology companies made a bounce on Wall Street on Wednesday.

Europe’s Stoxx 600 index advanced by 1.2% yesterday, the most single day jump since mid-August, while Futures for the S&P 500 were up 0.2%, treasuries were steady, and the dollar remained flat.

In Asia, The MSCI Asia Pacific Index climbed the most in a month, supported by gains in the technology sector. In Japan, the Nikkei index reversed its seven-day losing streak, while the yen declined from its strongest level against the dollar since December.

Traders are still focusing on interest rate developments, with the FTSE 100 and European stocks joining the global rally today, advancing in early trade ahead of an interest rate announcement by the European Central Bank.

US inflation data for August supported the expectations for a Federal Reserve rate cut next week, but fueled speculation that the move will be gradual.

Market sentiment has been characterised by optimism that the Fed will drive the US economy to a soft landing and fear that the Federal Reserve has waited too long to cut rates. Swaps have now priced in a 25-basis point rate reduction next week, however there is an argument over the path for further reductions.

Oil continues its gains from Wednesday as Hurricane Francine destroyed key oil-producing zones in the Gulf of Mexico triggering bearish bets, while Gold is still trading above $2,515 per ounce.

Global Stocks Tumble as Flight from Risk Continues

4th September 2024

A global flight from risk assets continues on Wednesday due to fears around the US economy and a sharp decline in US stocks especially in the big tech sector on Tuesday after the labour day holiday weekend.

Traders are fearing additional swings, looking for clues on whether the US economy is threatened by a recession, and the Federal Reserve’s next adjustments to its monetary policy.

A US job openings report expected today will indicate whether there is further cooling in the labor market, marking a 5th consecutive month of contraction in manufacturing activity. The market is shifting its focus from inflation to concerns over economic growth, causing turmoil in stocks and other risk assets.

Traders are expecting the Federal Reserve to start easing its policy in September by reducing rates by more than two full percentage points over the next 12 months, this is the steepest drop since the 1980s outside of a downturn. Furthermore, payrolls data is due on Friday and will be crucial in defining the magnitude of the initial rate cut.

In currencies, the dollar snapped a five-day winning streak whilst the yen extended its gains.

Oil dropped further after crashing to the lowest level this year, with Brent futures falling to around $73 a barrel due to growing concerns that weak demand and restored supplies from OPEC will create a new surplus.

Gold futures are hovering above $2,515 per ounce, down from their all-time high last month but still up almost 22% year to date. The precious metal remains the traders’ favourite hedge against geopolitical and financial risks, gaining additional support from expected Fed rate cuts later this month and ongoing EM central bank buying. Traders are pricing in a 31% probability of a 50-basis point cut instead of 25 basis points according to the CME FedWatch – CME Group.

24th August 2024

Powell’s keynote address at Jackson Hole sets the tone for rate cuts

The recent statements by Jerome Powell, Chairman of the Federal Reserve, in his keynote address at the Jackson Hole meeting on the August 23, signaled a potential shift in the central bank’s approach to monetary policy. The indication of a forthcoming reduction in interest rates reflects a response to the current economic indicators, such as the proximity of inflation rates to the Fed’s target and the uptick in unemployment figures. The balance between price stability and maximum employment is a delicate one, and the Fed’s dual mandate requires careful navigation of these economic waters.

The Fed’s inclination towards easing monetary policy suggests a prioritisation of employment over inflation concerns, a stance that is underscored by the current labor market conditions. The rise in unemployment to 4.3% from a lower point earlier in the year is not trivial, and the Fed’s acknowledgment of this trend is telling of its current focus. The increase in the labor supply, as mentioned by Powell, indicates a complex labor market dynamic that is not solely driven by job cuts but also by more individuals entering the job market.

Powell’s remarks about the ‘direction of travel’ being clear but the ‘pace of travel’ being uncertain encapsulate the current economic sentiment. The central bank’s cautious approach to adjusting policy, while recognising the need for action, reflects the uncertainties inherent in economic forecasting and policy implementation. The labor market cooling, as described by Powell, is a significant factor in the Fed’s policy considerations, as it seeks to avoid exacerbating any potential downturns in employment.

The Fed’s stance on not welcoming further cooling in the labor market conditions, despite the rising unemployment rate, is indicative of its commitment to fostering a robust job market. This is in line with the broader goal of ensuring long-term economic stability and growth. The absence of immediate concerns about a recession from Powell’s perspective offers a somewhat reassuring note amidst the complexities of the current economic landscape.

In summary, the Federal Reserve, under Powell’s chairmanship, appears to be preparing for a careful recalibration of its monetary policy in response to the evolving economic situation. The focus on maintaining employment levels while managing inflation reflects the intricate balance the Fed aims to achieve in its pursuit of economic stability and growth. As the next monetary-policy meeting approaches next month, all eyes will be on the Fed’s actions and their implications for the economy at large.

The economic landscape, as outlined by Mr. Powell, reflects the intricate balance central banks worldwide strive to maintain. The pandemic’s onset brought forth challenges that tested traditional economic models, revealing the complexity of global supply chains and the unpredictability of consumer behavior. The Federal Reserve’s response, characterised by agility and informed by evolving data, underscores the dynamic nature of modern monetary policy. This adaptability is crucial in a world where economic conditions can shift rapidly, and policies must be responsive to these changes.

The anticipation of a quarter-point reduction by the Fed, as inferred from bond-market pricing, suggests a cautious yet responsive approach to the current inflationary pressures. It’s a delicate maneuver, aiming to temper inflation without stifling economic growth. The investors’ expectations of about two more percentage points of cuts during the coming year indicate a belief in the Fed’s commitment to recalibrate its strategies in the face of persistent inflation.

On other news around the globe, Japan’s nuanced inflation metrics tell a story of an economy grappling with its own unique set of challenges. The rise in the core-inflation rate to 2.7% in July from 2.6% in June. However, the drop in the “core-core” rate to 1.9%, from 2.2% which was the first time it fell below the Bank of Japan’s 2% target since September 2022, paints a picture of an economy where external factors like food and energy significantly influence inflation. The Bank of Japan’s decision to raise interest rates last March for the first time in nearly two decades marks a pivotal shift, suggesting a move towards normalising monetary policy after 17 years of unprecedented stimulus measures.

In essence, the economic narratives from the United States and Japan highlight the ongoing efforts of central banks to navigate the post-pandemic recovery. They must balance the need to support economic growth with the imperative to maintain price stability. The actions of the Fed and the Bank of Japan will continue to be closely watched as indicators of how central banks might approach policymaking in an era marked by rapid change and heightened uncertainty. The global economic community remains attentive to these developments, understanding that the decisions made in Washington and Tokyo have far-reaching implications. The path forward is one of cautious optimism, with a keen awareness of the lessons learned during the pandemic and a forward-looking stance ready to adapt to the ever-evolving economic landscape.

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