By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Markets brought ‘more of the same’ yesterday as the TACO trade rolled on, seeing equities notch further gains, as geopolitical risk continued to recede. The latest ‘flash’ PMIs highlight today’s docket.
WHERE WE STAND – After the cacophony of headline noise that has dominated so much of the week, I’d wager there aren’t many market participants who will complain too much about the considerably calmer tones that prevailed yesterday.
Put simply, there wasn’t much by way of fresh or impactful developments throughout the day. The weekly US jobless claims figures were a touch better than expected, with the initial claims figure continuing to hover around the 200k mark, while Q3 US GDP growth was nudged 0.1pp higher to 4.4% QoQ SAAR, though the figures are too stale at this point to really matter much.
We also had a brief bit of excitement on the UK political front, amid reports that Andrew Gwynne MP will be stepping down, triggering a by-election in which Andy Burnham may stand, which in turn could open the door to Burnham potentially challenging PM Starmer for the Labour leadership at a later date.
Obviously, there are a lot of ‘ifs, buts, and maybes’ with all this, but the higher chance of a more left-wing PM, especially one who has spoke at length about not wanting to be ‘in hock to the bond market’, rather upset the Gilt market, with long-end yields rising as much as 10bp on the news breaking. That such a violent move can be triggered by these mere murmurings should serve as another reminder, if one were needed, of just how fragile sentiment remains on the UK fiscal front.
Besides that, Thursday proved to be largely a case of ‘more of the same’, as participants continued to digest the ‘framework’ deal agreed on Greenland, and react to the unwinding of President Trump’s threat of tariffs on various European countries. With that in mind, the ‘TACO trade’ remained in full-swing, with a risk-on vibe sweeping across the board.
With that in mind, it proved to be another positive day for equities, with stocks on both sides of the pond closing nicely in the green, and with the ‘path of least resistance’ continuing to lead convincingly to the upside, as participants re-focus on what remains a robust fundamental bull case. Elsewhere, it was notable to see that the buck continued to trade softer, though I’d wager this was more to do with downside seen in Treasuries, and the flatter curve, as opposed to any ‘sell America’ flows, which by this point should have subsided.
In any case, as the buck softened, metals continued to gain ground, with gold printing a new record high, and bullish momentum remaining intact among the rest of the precious complex. As I’ve been saying for some time now, I remain inclined to ride this momentum wave higher, maintaining my targets of $5,000/oz in gold and $100/oz in silver for the time being.
LOOK AHEAD – Friday is finally upon us.
There’s a few bits and bobs of note on today’s docket, which will be highlighted by the latest round of ‘flash’ PMI surveys from most DM economies, with the data being a useful gauge as to how things have been evolving since the year got underway, even if the majority of these indices are set to be largely unchanged from the level seen last month. Besides that, we also have the latest UK and Canadian retail sales reports to digest, as well as the final read on this month’s UMich consumer sentiment survey.
Elsewhere, remarks from ECB President Lagarde and external BoE MPC member Greene could prompt some interest, while the pre-market earnings slate is a fairly barren one.
With all that said, all that’s left for me to do is to provide my usual reminder to be wary of the potential for gapping risk at the re-open on the back of any unexpected weekend developments, and to then work on finding a watering hole in which to enjoy a beverage or three to see in the weekend.