By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Sentiment proved steadier yesterday, as uncertainty faded, and US data remained resilient, seeing stocks rebound, and metals slip. Today, US industrial production highlights a light data docket.
WHERE WE STAND – Calmer and altogether steadier tones prevailed yesterday, as markets moved past the wobble we saw on Wednesday.
Once more, there wasn’t a particular obvious catalyst which one can point to as having ‘steadied the ship’, though we have seen a degree of policy uncertainty fading, given the apparent reduction in risks of a US intervention in the Middle East, as well as solid earnings from TSMC having re-enthused the tech bulls.
Consequently, we saw a much more positive vibe to proceedings, with equities trading in the green across the board, and with Treasuries rolling over across the curve, which flattened a touch. Precious metals also faced a few headwinds, most notably in the case of silver, which briefly dipped back under the $90/oz mark before recovering, largely in reaction to news that – for the time being – the Trump Admin shan’t be placing tariffs on critical mineral imports.
Having said that, and while a brief blip in what had become a parabolic rally is no bad thing in terms of a sustainable uptrend, it does feel like the market is still gunning for the $100/oz round number at some stage. While I remain a believer in the fundamental bull case, it does increasingly seem that we’re at, or close to, a point where those who’ve been long for a while should probably start to think about taking a decent chunk of profits, though this certainly isn’t a market that you’d want to be sitting short of given the ferocious nature of rallies in recent weeks.
Despite the overall mood being a much more upbeat one, it was notable that the greenback continued to prove resilient, advancing against all major peers for the second day running. A decent set of jobless claims data certainly did no harm, nor did rising Treasury yields, though I still find it very difficult indeed to get especially excited about the G10 FX space, with vols still on the floor, and scant sign of the market having any desire to do especially much right now, or in the near future.
Speaking of data, I suppose I should note that the UK economy returned to growth in November, with GDP rising 0.3% MoM. This, though, was driven almost entirely by a rebound in Jaguar Land Rover auto production as the firm continues to recover from last year’s cyber attack and, even then, only yielded growth of 0.1% on a less noisy rolling 3-month basis. In other words, the UK economy remains a rounding error away from flat-lining and, with risks tilted firmly to the downside, plus the BoE being a million miles behind the curve, I still struggle to endorse anything other than short GBP and short Gilt trades.
LOOK AHEAD – A light docket today, with only Dec’s US industrial production data of note, and that hardly being a market-mover.
That said, there are three things to bear in mind as the week wraps up – firstly, the FOMC’s pre-meeting ‘blackout’ starts tonight; secondly, most US markets will be closed on Monday, for Martin Luther King Jr. Day; and, lastly, beware the potential for gapping risk on the market re-open, especially amid ongoing geopolitical risk in the Middle East.