By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – While metals remained volatile yesterday, markets elsewhere shrugged things off, as equities rallied strongly, and the dollar advanced against most peers. Today, a barren docket awaits.
WHERE WE STAND – Very much a ‘day of two halves’ yesterday, with a renewed bout of cross-asset chaos during the APAC session rather rapidly giving way to considerably calmer conditions, and a much more positive risk tone as the day progressed.
Once again, pertinent news- and data-flow was pretty light and, once again, it was very much a case of markets at large being largely at the behest of developments in the metals complex. That said, while cross-asset correlations have undoubtedly tightened considerably since the mass unwind of stretched gold and silver longs begun late last week, I’d still argue that the extent of the cross-asset spill-over has been relatively limited on the whole. We’ve hardly seen a significant degree of de-leveraging or de-grossing on the whole, which is perhaps surprising considering the substantial uptick in cross-asset volatility, and the tight leash on which most VaR models now tend to keep those running speculative books.
Still, that that hasn’t happened should be seen as a positive, and again suggests that the metals meltdown is indeed confined to that corner of financial markets, as opposed to being the harbinger of something more sinister and systemic in nature. We must, though, remain cognizant as to the risk of any potential fallout from such a monumental move, of the ilk seen on Friday, with said fallout likely to become clearer as the dust settles.
Anyway, yesterday did prove to be another day of declines for precious metals, with both gold and silver notching hunky declines, albeit with both also ending proceedings a fair way above the intraday lows. I maintain my view that the best thing for the metals complex right now would be to become a bit boring again – basically, for spot gold and silver to consolidate and move sideways for a time, given that that would not only prove that a lot of the speculative frenzy has subsided, but also allow a solid fundamental backdrop (reserve demand, geopolitical risk hedging, retail increasing portfolio allocations, etc.) to catch-up with the price once more, in turn building a more sustainable rally moving forwards.
As for markets elsewhere, the wobble in the metals space was all-but-shrugged off by the time most participants here in London had got to their desks, with stocks never really looking back, as major indices on both sides of the pond – to coin a phrase a dear friend of mine frequently uses – ‘rallied like a homesick angel’.
A solid ISM manufacturing print, with the index at its best level in almost four years and back in expansionary territory, helped things along nicely, reinforcing that the underlying economy remains robust, at the same time as earnings growth proves solid (currently running at a blended rate of 11.9% YoY for Q4 25 and set for a fifth straight quarter of double-digit growth), and while the monetary and fiscal backdrops are both set to loosen over the course of the year ahead. Once again, as we did with the Greenland tariff saga, we see dip buyers emerging in size as market noise elsewhere is slowly but steadily dialled down, with my base case continuing to be that dips remain buying opportunities, and that the path of least resistance continues to lead firmly to the upside, in one of the most favourable environments for risk taking that one could wish for.
Elsewhere, the greenback gained ground for a second day running, with the DXY reclaiming the 97 handle in the process, and gaining broadly against most peers. In fact, the market has now unwound all of the dollar downside seen last week in the aftermath of President Trump’s apparent comfort with the buck’s slide.
This puts us at an interesting point where, ordinarily, I’d argue that Friday’s jobs report might tilt the balance of control one way or another, but with that postponed due to the partial government shutdown, the hunt for a catalyst goes on. I suppose I’d describe my overall view as cautiously USD bullish right now – there’s little reason to doubt that US growth will notably outperform that seen in the RoW this year, but the market will only be able to focus on that providing policy volatility stays contained. If it does, further USD upside should follow, with a break above the 50/100/200-day MAs, all sat around 98.60, likely to give me further confidence in that view.
LOOK AHEAD – Whatever you do, don’t use the ‘Q word’!
Today’s docket is a pretty barren one, with no notable releases from Europe this morning, and with the December JOLTS report having also fallen victim to the government shutdown. As a result, all we have to keep us entertained are scheduled remarks from Fed Governor Bowman, and 2027 voter Barkin, as well as a handful of notable corporate earnings, including reports from the likes of AMD and SuperMicro (SMCI) after the close.