The long-threatened tariffs against Chinese, Canadian and Mexican goods finally came into effect on Tuesday. Despite the threat of such tariffs being a major driver in the Dollar’s strength since Election Day, the Greenback has seen significant back-to-back losses so far this week. Perhaps a “buy the news – sell the event” kind of response, or perhaps investors are beginning to rebalance the underlying fundamentals of the world’s largest economy. The latest round of US manufacturing data came in lower than expected on Monday but more worryingly, the report also revealed drops in new orders and employment. US stock indices have had a rough time of it so far this week, with all three majors getting hammered to the downside over the last two sessions. Investors may justify such movements however they please, but the fact is that there are clear outflows from the Dollar, allowing the Euro in particular to do some much needed catching up. The common currency remains near historical lows, but did manage to climb up to $1.06 yesterday for the first this year. A similar story for Cable, which stopped just shy of $1.28 on Tuesday. Weakness in the Dollar also helped to give gold a leg up early this week, with bullion prices rising to highs of $2,929 an ounce. Crude oil prices have absolutely no grounds for optimism in light of the current macro environment. Trade wars, the potential for weaker growth, not to mention planned production increases for OPEC+ members together all pushed crude to fresh yearly lows yesterday. Brent is now swapping hands for just $70 a barrel, while WTI is down to just $67. The oil cartel self-imposed a production cut of 5.85 million barrels per day back in 2022 in order to support markets, but elected to phase out such restrictions starting in April. The last couple of days have been anything but muted in terms of trading activity, and a glance at the economic calendar shows the week is far from over. Traders have an easy start with European services PMI data but things may ramp up with ADP employment numbers later in the day. Tomorrow, another 25-bps cut is pencilled-in for the Euro but the event everyone is waiting for is of course Non-Farm Payrolls on Friday. No rest for the wicked.
Any lingering doubts surrounding tariffs were scattered to the wind yesterday, as Donald Trump made it abundantly clear that such measures would indeed go ahead on the 4th of March. The Dollar welcomed the update with open arms, climbing 0.77% against the usual basket and registering its strongest day of the year so far. The rise in the Greenback was counterbalanced by a fall in gold, which sunk to $2,877 an ounce by yesterday’s close. US stock markets certainly felt the pressure during Thursday’s session. The Dow, being relatively isolated from the tech sector, escaped somewhat unscathed with a mere 0.45% drop. The S&P 500 and Nasdaq Comp meanwhile faced losses of 1.6% and 2.8% respectively. The latest earnings report from Nvidia (NVDA) did nothing to help matters. The report was fairly balanced overall, but investors were not impressed by some of the forecasts within, leading to an 8.5% drop in the chipmaker’s share price. President Trump’s update on tariffs hit Asian markets hard this morning. In Japan, the Nikkei 225 is down almost 3% at the time of writing. The Korean Kospi index is down by a similar amount. In Hong Kong, the Hang Seng index is also down by over 2% after hitting a record high just yesterday. Chinese goods are expected to be subject to additional 10% levies starting next week, but the new tariff structure is expected to affect countries far and wide. The carnage is currently extending to cryptocurrencies, which saw Bitcoin wick all the way down to $79k early this morning. This now represents a 25% fall from the all-time high established less than six weeks ago. A busy start to a potentially busy day. It will take a while for the dust to settle with regards to the new tariff regime and markets may feel a little jittery in light of recent developments. Traders will also have to contend with the release of the latest PCE Price Index once the US session opens later today. Eyes open.
The past couple of sessions saw a healthy dose of volatility reintroduced into markets as Donald Trump fielded the ever-growing question of trade tariffs. The president confirmed that tariffs on Mexican and Canadian goods would proceed as planned, as would tariffs on imported steel and aluminium. Clarifications welcomed by some but deemed insufficient by others. Unexpectedly poor US consumer confidence threw another spanner into the works on Tuesday, leading to loses in tech stocks and piling pressure on the S&P 500 and Nasdaq Composite. Nvidia is set to publish its latest earnings report later today, although the numbers will only come in after the bell. Trade uncertainty was as good a reason as any for larger investors to book some profits, particularly in precious metals and cryptocurrencies. Gold fell $37 yesterday after hitting a record high of $2,956 the day prior. Crude oil had a rough day as traders were forced to price in the prospect of lower demand and mounting stockpiles. Brent Crude is now down to $73 a barrel while WTI is clinging onto $69. The real bloodbath was in crypto however, with Bitcoin plummeting all the way down to $85k on Tuesday from highs of $96k during the weekend. Further down the crypto leaderboard, Ethereum faced the added problem of the recent Bybit hack, in which $1.5 billion worth of Eth was stolen from the platform’s cold wallets. CEO Ben Zhou has assured clients that all holdings remain backed 1:1 but as with any such security breach, investor confidence has been knocked. Monday’s selloff extended far and wide, with many projects experiencing double-digit losses. It will become more evident as the week progresses whether there is genuine fear in crypto markets or if this entire event was merely an excuse to flush out overleveraged longs. Many remain sceptical.
In recent weeks, concerning reports have emerged relating to the physical delivery of gold. If sources are to be believed, there have been considerable shipping delays between London and New York because of the huge volumes being transported. Standard delivery times are usually no more than a couple of days, but this has now increased to over a month according to those familiar with such matters. So what is going on? London has long been the world’s primary centre for the trading of precious metals. The London Bullion Market Association (LBMA) accounts for roughly two thirds of worldwide physical gold trading. As of January 2025, 8,500 tonnes of gold and 23,500 tonnes of silver were stored within the LBMA’s cavernous vaults. While the Bank of England does indeed use the same vaults for its own holdings, the vast majority of the precious metals within are the property of various international banks, bullion dealers and refiners. On the other side of the Atlantic, New York is home to COMEX, or The Commodity Exchange. COMEX is essentially the metals branch of the Chicago Mercantile Exchange (CME), but unlike its British counterpart deals exclusively in futures contracts. This is not to say that those futures contracts cannot be physically delivered, but this very rarely occurs. To the obvious question then: why is so much gold being sent from London to New York? The first element of an answer is of course the looming threat of tariffs. Much of the gold stored under the streets of London will belong to American entities. If President Trump is serious about enacting wide-ranging tariffs on goods coming into the United States, why should gold be any exception? If tariffs are indeed on the cards, the advantage of pre-emptively shipping goods is obvious. This line of reasoning has been cited by financial analysts and even by the LBMA itself, but it is worth exploring in a little more depth. In particular, why is JPMorgan importing $4 billion in gold bullion? Whether tariffs will end up affecting gold or not is almost irrelevant. If markets think there is a possibility, it will be priced in. Moreover, the larger players involved in this game, such as international banks, have an obligation to cover all possible risks. Typically, futures contracts will price a commodity higher than the actual spot value, a situation known as contango. In the case of gold, the COMEX price is higher than the figures being quoted for actual bullion. This leads to a small but workable arbitrage opportunity, which generates huge revenues for those in a position to take advantage of it. All well and good, but a somewhat delicate balancing act – one that could be quickly upended by a sudden tariff for example. Both paper and physical gold prices would spike. This would be a disaster for the likes of JPMorgan, who would lose out massively if it had to cover futures contracts at a higher price. By importing huge amounts of gold before the contracts expire, banks can bypass this problem and maintain an arbitrage advantage by settling physically if they have to. Having gold bullion on hand is essentially an insurance policy. International banks will have entire teams dedicated to staying on top of situations like these. So that’s it. Entire planes full of gold are being flown over the Atlantic because of some fleeting agreements that typically would not leave the confines of a database. The logistics of doing so are certainly nothing to be sniffed at. One overlooked aspect of the operation is that the gold bars stored in London do not meet the required specification of the COMEX deliverables. London favours the larger, 12.5 kg bars whereas New York demands smaller, 100-ounce ingots. As a result, London gold first has to be transported to refineries in Switzerland to be recast to the dimensions required by COMEX. Once ready, the gold bars are transported in armoured vehicles by drivers who are not typically informed as to the contents of their trucks. After arriving at the airport, the precious cargo is loaded into the holds of commercial jets, unbeknownst to the passengers above, before being flown across the ocean. Only so much gold can be flown at a time because of insurance purposes. An airplane full of gold would be prohibitively expensive to insure. An impressive undertaking no doubt, but one that can still be covered by the London - New York spread. Sending gold around the world by plane is nothing new, as long as the arbitrage trumps the transport costs it is a perfectly viable trade. The sheer volumes currently crossing the Atlantic are unprecedented however, hence the delays experienced by those seeking delivery out of the London vaults. The novelty has even extended to the silver trade. The premiums in silver futures are now such that is worth sending silver bullion by air – something that would normally only be done by sea freight. Interesting times call for interesting measures.
Poor economic data triggered significant selloffs in US stocks last Friday, leading to steep losses in the major indices. The Dow and S&P 500 both lost around 1.7% while the tech-heavy Nasdaq fell 2.2%. Not the greatest of days. Not the greatest of weeks. A glance at the futures markets this morning does paint a more optimistic picture, with the big three currently up around 0.4%. The Dollar remained relatively isolated from all the drama, with the DXY making a slight gain on the day. Gold was similarly unmoved, losing no more than a handful of Dollars on Friday. Crude oil prices on the other hand fell over 3% late last week as tensions in the Middle East continued to dissipate. The latest S&P global PMI report stoked fears that US business activity is stalling. While the manufacturing sector remained firmly in expansion and even exceeded expectations, the US service sector on the other hand unexpectedly fell into contraction with a 49.7 print – the lowest in over two years. Fundamentals may have to take a step back for the time being. The German election has just concluded and as usual the event provided no clear winner. The leading parties will now have to wrangle out a coalition for the years ahead. The Euro rose 0.5% against the Dollar this morning and is currently hovering around $1.05. The economic calendar is utterly devoid of content early this week, so expect politics to be the main driver behind any market movements. The drought won’t really end until Friday, with the release of the PCE price index. The core index, which excludes food and energy costs, has long been the Fed’s main weather vane to gauge US inflation. US GDP may also provide a surprise on Thursday, but until then, better to keep an eye on the news.
Gold notched its second record high of the week yesterday, touching $2,955 an ounce before making a small pullback. Safe-haven inflows have resumed once again in light of trade tariff posturing and the threat of a wider global trade war. For now, such talk remains no more than a threat, to the frustration of many Dollar bulls. As Donald Trump begins his second month in office, many expected such tariffs to be set in stone at this point. The delays and uncertainty are leading to many traders losing patience with the long Dollar trade. The Greenback hit another yearly low yesterday, dragging the DXY down 0.77% to the low-106 range. The Japanese Yen in particular took advantage of a weaker Dollar, which fell below 150 Yen on Thursday. Murmurs behind the scenes suggest the Bank of Japan could increase rates on the Yen during the summer. Recent data out of Japan certainly backs up such a possibility. On Monday, Japanese GDP crushed expectations, coming in far higher than anticipated. Data published this morning also suggests an uptick in inflation within the island nation, further bolstering the argument for a rate hike. A reminder that Japan is in a completely different situation to most countries in this regard. For decades, the BoJ has maintained rates in and around 0% in a bid to stimulate growth, with mixed results. Current rates are the highest they have been since 2008 and unlike much of the rest of the world, are looking to go higher as opposed to lower. The latest FOMC minutes did nothing to shift sentiments, as board members once again reiterated the need to see progress on inflation before committing to a rate cut. FedWatch did not budge an inch following the release, steadfastly clinging to a 95%+ chance of no change at the next meeting. Yawn. The week is not over yet. The European session opens with UK retail sales and a slew of European manufacturing and services figures. Later on, Canadian retail sales and US PMIs wrap up the day’s events. One last push before the weekend.
