By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Mounting policy uncertainty on numerous fronts, be it monetary, geopolitical, or trade, shook sentiment yesterday, with stocks softening across the board, and havens such as gold gaining once more.
WHERE WE STAND – Sentiment was rather shaky throughout the day yesterday, though it must be said there was little by way of obvious catalyst to drive the somewhat risk-averse vibe that we saw across the board.
In fact, news flow during the day leaned bullish on balance, with November’s US retail sales print (+0.6% MoM) having comfortably beat expectations, and with the Supreme Court not issuing any ruling in the IEEPA tariff case, leaving that charade to rumble on until another day.
I suppose, at the margin, one could point to a broad increase in policy uncertainty driving a degree of caution, ranging from the Trump Admin’s continued efforts to erode Fed policy independence, through to geopolitical risk escalating in the Middle East, while not forgetting the ongoing trade saga, with China having reportedly (again) blocked imports of Nvidia’s top-of-the-line H200 chips. Admittedly, though, all that does feel like a bit of a stretch to me, and certainly doesn’t have the makings of a long-lasting bear case in any instance.
On the contrary, I remain a strong believer in the underlying fundamental bull case, which continues to tilt the ‘path of least resistance’ for the market at large to the upside. Not only does the economy remain relatively robust, as evidenced by the aforementioned retail sales print, but corporate reports (from the likes of BofA and Citi, yesterday) are starting to paint a bit of a brighter picture too. Added to which, both the monetary and fiscal backdrops are set to ease further as the year progresses, while trade/tariff risks continue to recede. Hence, I’d be viewing dips of the ilk that we are currently seeing as buying opportunities, not least taking into account that the aforementioned uncertainties should abate in short-ish order, allowing participants to re-focus on those strong fundamental tailwinds.
While stocks bucked the trend seen in recent sessions, it’s safe to say that was not the case in the metals complex, with gold hitting a fresh record, silver clearing $90/oz for the first time, and even base metals such as copper joining in, trading to record highs of its own. I wrote up a separate note on the bullish drivers of metals yesterday, do let me know if you’ve not already seen and would like a read, though the bull case in short is one where incredibly powerful upside momentum, coupled with ongoing geopolitical uncertainty, physical shortages, and industrial demand have all combined to create a powerful cocktail to drive further upside, with this being a move that I’d have absolutely no intention whatsoever of trying to fade.
In any case, the general risk-averse vibe of trade also boosted Treasuries, which advanced across the curve amid notable haven demand, and where the significant curve steepening seen over recent weeks took a bit of a ‘pause for breath’, though I’d not bet on that being a particularly long pause. The greenback also found a bit of haven demand, at least enough to keep the DXY north of the 99 figure, though in truth conditions in the G10 FX space remain rather moribund, with that also not looking like it’ll change substantially any time soon.
LOOK AHEAD – A few bits and bobs on the docket today, though judging by the calendar at least, things could be somewhat less frenetic than recent days.
This morning, we receive the latest GDP figures from here in the UK, with the economy set to have grown just 0.1% MoM in November, largely resulting from the continued resumption of JLR production as the recovery from last year’s cyber attack continues. Such an anaemic pace of growth, though, is hardly a ringing endorsement of the UK’s economic prospects, not least considering that risks to the outlook remain tilted firmly to the downside, and that the fiscal ‘doom loop’ seems set to continue, with the government’s latest U-turns eroding as much as two-thirds of the headroom that Chancellor Reeves left herself at the November Budget.
Besides that, it’s a day of second-tier releases, by and large. This morning also brings an update on industrial production in the eurozone, though this November data is likely too stale to matter especially much. Across the pond, as is typical, we get the weekly jobless claims figures this lunchtime, though both the initial and continuing claims metrics should remain relatively subdued, and neither pertains to the January NFP survey week in any case.
Finally, earnings from the major banks wrap up today, after solid figures from the likes of BofA and Citi yesterday, with Goldman Sachs and Morgan Stanley both set to report before the market open.