The latest round of NFP data provided traders with plenty to work with last Friday. Although the headline figure fell short of expectations, coming in at 143k new jobs versus 170k expected, the report provided grounds for optimism. Unemployment fell to 4% from 4.1% in December and figures for previous months were revised heavily to the upside, more than mitigating the most recent shortfall. As many economists were quick to point out, January is hardly the most aggressive month in terms of hiring. Gold made a push towards new highs on Friday but the effort was thwarted in the end. By the looks of things, markets are eager to resume the battle this morning, carrying the price of gold up to $2,880 at the time of writing. Gold bugs will have enjoyed recent reports that the People’s Bank of China continued to expand its gold reserves for the third straight month in January. The question of gold’s trajectory ultimately lies with the Dollar, which will face no small degree of scrutiny this week. Starting tomorrow, Fed Chair Jerome Powell will testify before Congress, where the main topic of conversation will undoubtedly revolve around interest rates. Attentions will not be limited to Powell either, with many Fed board members delivering speeches throughout the week. Wednesday will provide an update on the latest inflation metrics in the US, followed by retail sales on Friday. On top of all the above, tariffs are still very much on the table, as Trump prepares to enact reciprocal measures on a number of nations, including China.
Markets stabilise ahead of Non-Farm Payrolls. The Dollar closed flat yesterday as traders patiently await the latest round of US employment data. The ADP employment figures published on Wednesday revealed an additional 183k new jobs, beating expectations of just 150k. The report sets the stage for the NFP release later today. Gold also receded from Wednesday’s all-time high, falling 0.4% yesterday to close at $2,856 an ounce. Oil prices fell to their lowest of the year on Thursday, with Brent Crude sinking to $74 a barrel and WTI treading water above $70. A number of factors are weighing on crude prices, most recently China announcing that will begin levying tariffs on US oil and gas from next Monday. The measure can be viewed as a retaliatory response to the fresh tariffs imposed on Chinese goods imported into the US. Weak demand in the world’s second largest economy continues to be a worrying factor for oil prices, as do global demand forecasts in general. Unexpected increases in US stockpiles also contributed to poor price action this week. In a widely anticipated move, the Bank of England elected to reduce interest rates on the Pound on Thursday, from 4.75% down to 4.5%. The decision was announced alongside the latest UK growth forecasts, which were surprisingly grim. The BoE now expects the UK economy to grow by just 0.75% in 2025, half what it was predicting three months ago. Cable fell the better part of a cent down to $1.243 by yesterday’s close. Very little on the calendar today except for the aforementioned Non-Farm Payrolls. Current expectations are for 170k new jobs and a 4.1% unemployment rate. Time will tell.
Gold has been the standout performer amid all the uncertainty, returning to its traditional role as a safe-haven asset for investors seeking refuge. The precious metal has gone from record high to record high in recent sessions and yesterday was no exception, reaching $2,841 an ounce by the end of the day. Inflows have even extended to silver, which closed above $32 for the first time since last November. Bitcoin has partially recovered from the rout in cryptocurrencies earlier in the week but remains below $100k at the time of writing. The Dollar withdrew from recent highs after wreaking havoc on Monday. The fallout from trade tariff posturing has left some interesting candles on major currency pairs but much of the violent price action appears to be behind us for the time being. The DXY retreated down to 108 late on Tuesday evening. Difficult to say what lies in store for traders over the next few days but attentions may have to turn back to fundamentals at some point. Later today, markets will whet their appetites with ADP employment figures, which serve as a precursor to the more headline-grabbing NFP numbers on Friday.
Carnage. Donald Trump kicked up a storm over the weekend by imposing tariffs on Canada, Mexico and China, effective as early as Tuesday. It goes without saying that financial markets have been going haywire since the announcement and as trading begins in earnest this morning things may escalate further. Mind the gap. As expected, there has been an immediate reaction in currencies. The Dollar is currently on a rampage and is causing mayhem on the usual pairs; DXY up 1.2% at the time of writing. The Euro experienced a rude awakening this morning, opening with a huge gap to the downside near $1.02. Worth bearing in mind that Trump has also threatened the EU with similar tariffs. The Canadian Dollar took a predictable hammering this morning, USDCAD currently fighting to remain below 1.48. Cryptocurrencies were similarly quick to respond, getting obliterated across the board. Bitcoin has been decimated over the weekend, suffering a solid 10% loss and plummeting to lows of $91k this morning. Needless to say, the reaction in the lower caps has been even more devastating. A sea of red. As for precious metals, gold has retreated from recent all-time highs, falling to $2,775 this morning after seeing a record $2,817 an ounce on Friday. A busy start to the week no doubt, but in all likelihood the drama is far from over. Manufacturing and services PMIs dominate the economic calendar early this week, after which the Bank of England will announce its latest interest rate decision on Thursday. It all culminates on Friday with the latest round of NFP data, but traders would do well to remember that geopolitical developments could steal the show at any time.
United States Dollar A boring but essential answer. The United States Dollar is the world’s reserve currency and will remain so for the foreseeable future. The mighty Greenback is the default means of payment for almost all international trade. The Dollar’s supremacy is incontestable even without a Trump presidency, but with DJT at the helm market participants can expect the Dollar to be wielded more aggressively than usual. One part of the equation is the difference in interest rates between the Dollar and other currencies. As of the time of writing, rates on the Dollar are 4.5%. In contrast, rates on the Euro are around 3%. The rate on the Japanese Yen has just been adjusted to 0.5%. Put simply, the ability to earn higher interest on the Dollar makes it more attractive. A large part of the Dollar’s ascendency over the past four months is due to interest rate differentials. This is worth bearing in mind when the US government starts calling for aggressive rate cuts. Slashing interest rates would weaken the Dollar, whereas maintaining them at the current high levels ensures demand remains strong. Tariffs are the second part of the equation. Higher tariffs and the threat thereof will have a significant impact on the Dollar over the coming years. There are many mechanisms at play here, but suffice to say that every time the administration appears to soften its tone on tariffs, the Dollar tends to lose out against competing currencies. The first week of Donald Trump’s presidency saw significant declines in the Dollar, in no small part because expected tariff announcements failed to materialise. More generally, the fact is that commodity markets are denominated in Dollars. Whether traders are looking at gold, oil or anything else, the Dollar is on the other side of the trade. Best to keep an eye on it. Crude oil More so than most other markets, the price of oil is heavily grounded in reality. The world consumes millions of barrels of oil every single day, which means that supply and demand dynamics dictate everything. Reduced production, disruptions in the supply chain, sanctions and tariffs will quickly and inevitably increase the price of crude oil. On the other hand, faltering demand will rapidly cause prices to fall. Because of this, oil markets are some of the more susceptible to geopolitical events. As we saw throughout last year, every development in the Middle East prompted an immediate response in the price of crude oil. News items relating to attacks on refineries in the Russia-Ukraine conflict had a similar impact. Talk of sanctions and tariffs against oil-producing nations will no doubt feature prominently in international relations over the next few years, but one of the more overlooked elements is the demand side of things. Unfortunately, industrial production is down across the globe, meaning demand for oil is also on the decline. European manufacturing in particular has been hit hard in recent times, ironically in part because of higher local energy prices due to embargoes against Russian oil and gas. The Chinese economy has also exhibited some fragility in recent years. Cracks are even starting to appear in the United States. Should worldwide demand continue to fall, crude prices may follow suit. Economic growth is practically synonymous with higher oil consumption. The interconnectedness and relevancy of oil markets ensure they will remain at the forefront of any political or economic shift. Not to be overlooked. Cryptocurrencies The incoming administration has been abundantly clear on its stance on cryptocurrencies. The response from the crypto markets has been equally unambiguous. Bitcoin is up 50% since the election. Exchanges have seen huge inflows. Ross Ulbricht is out of prison. Calls for deregulation are ringing out loud and clear. The Securities and Exchange Commission has been difficult to contend with in recent times, to put it mildly. But change is in the air. Former chair of the SEC Gary Gensler is long gone and his replacement, Paul Atkins, although still awaiting confirmation, could not be more diametrically opposed to the outgoing team. The last few years were some of the darkest in the history of crypto. Stifling and confusing regulations crippled the fledgling industry just when it needed guidance the most. Many voices in the scene repeatedly begged for greater clarity, only to receive nothing but punitive measures in response. On top of that, the period was marred by the worst scams, hacks and scandals we have ever seen. The losses from the collapse of FTX alone reached into the billions. Utterly unforgiveable. All signs are pointing to the bad times drawing to an end. Many developments that have been held back until now are waiting to be unleashed. Interesting times ahead. Artificial Intelligence During his first week in office, President Trump announced the Stargate Project. The project intends to invest $500 billion over the next four years in AI infrastructure in the United States. The announcement alone triggered a flurry of buying activity in the tech companies most likely to benefit from such an investment. Chip manufacturers are likely to remain under the scrutinous gaze of investors with deep pockets. Nvidia (NVDA) shares almost tripled in price in 2024 alone and the company now stands shoulder to shoulder with the largest tech giants in America. The rise was largely fuelled by anticipated advancements in the AI sector. An argument could be made that the hype surrounding Artificial Intelligence is somewhat unjustified, time will tell. Pledges of such magnitude cannot be ignored however. There is something of an international arms race developing when it comes to AI, particularly between the US and China. Shortly after the announcement of Project Stargate, Chinese startup DeepSeek surprised everyone by releasing an open-source version of its AI model that supposedly competes with the best of what Silicon Valley has to offer. Even more surprisingly, the model was trained at a fraction of the cost of its US counterparts. Much like with the cryptocurrency industry, there is a certain amount of scepticism among large swathes of the general population when it comes to AI. There is certainly nothing wrong with being sceptical, but as any savvy investor will know, it is always worth keeping tabs on where the money is going.
The year of the snake is upon us; time to shed bad trading habits. Yesterday, US stock markets made a decent show of recovering from the fallout of the massive sell-off in Nvidia (NVDA) shares that occurred on Monday. For those who missed it, Chinese start-up DeepSeek surprised the world by releasing an open source version of its AI model that supposedly competes with the best of what Silicon Valley has to offer. More importantly, the company trained the model for a fraction of the price of its competitors. The news prompted a half-trillion Dollar loss in Nvidia’s market cap, the assumption being that the hardware requirements for AI endeavours are not as high as previously thought. GPUs not needed. Nvidia plunged 17% by Monday’s close, dragging the Nasdaq Composite and S&P 500 down along with it. By the end of Tuesday’s session however, both indices had managed to undo much of the damage. Nvidia shares closed at $129 yesterday, down from highs of $153 three weeks ago. As for the rest of the financial markets, things are somewhat tame in comparison. The Dollar gained some strength yesterday, the DXY rising half a percent to just under 108. Currency traders are bracing for back-to-back announcements from the Bank of Canada and the Federal Reserve. The former is expected to shave a quarter percent off the current 3.25% whereas the latter is expected to remain steadfast at 4.5%. Of course, it is not all about numbers. Today marks the Fed’s first interest rate decision under the Trump administration and markets will be keen to gauge the general sentiment among board members.
