Mixed close across Asian Pacific indices

All the major US stock indices fell sharply on Tuesday to log their worst daily session since October. The Dow dropped 1.8%, while the small cap Russell 2000 fell 1.2%. But once again, it was the tech sector which was hit hardest, and this contributed to losses in the S&P 500 and the Nasdaq of 2.1% and 2.4%, respectively.

Considering sectors within the S&P, Tech was hit hardest, ending the session down 2.9%. But out of the eleven sectors, only Consumer Staples ended positively with a minuscule gain of 0.1%. Overall, this was a ‘risk-off’ day with few hiding places.

Source: TN Trader

Once again, President Trump’s threat of trade tariffs did the damage. He lashed out against eight European countries (including the UK) that have pushed back against his measures to acquire Greenland for the US. Mr Trump warned of escalating levies on these countries (which also happen to be NATO members) starting at 10% in February and rising to 25% by June. He also took an additional swipe at French President Macron, threatening 200% tariffs on French wine and Champagne.

This aggressive rhetoric sparked a classic “sell America” move. Equities slumped, while US Treasury yields spiked as investors trimmed their holdings of US assets, including the dollar. The 10-year yield briefly topped 4.3%, its highest level since August, adding further downside pressure on risk assets.

Going into the close, the S&P dipped under 6,800 to hit its lowest level in four weeks. After the close, streaming giant Netflix added to the cautious tone after its earnings underwhelmed. The stock dropped close to 6% on softer guidance.

Despite this, US stock index futures have stabilised this morning, and there have been some modest gains for individual tech stocks. But the broader tone remains extremely fragile. While today sees earnings updates from Johnson & Johnson, Halliburton, Travelers and Kinder Morgan, amongst others, the real focus will be on The Donald and his speech at Davos this afternoon.

Despite the stock market pullback, nothing has broken – yet. But having tested and failed so far to break above 7,000, the S&P 500 is now trading in a band of support around 6,800. Should there be another lurch lower that brings a deep and protracted break below here, then that could trigger a more significant ‘risk-off’ move.

European stock indices were mixed soon after the open, with investors preparing themselves for President Trump’s address at the World Economic Forum in Davos later today.

The UK’s FTSE 100 was little changed in early trade as investors sat on their hands following this week’s pullback from all-time highs. But the German DAX retreated further, adding to losses made yesterday. The index is currently testing the bottom end of a band of support, which comes in around 24,500.

Source: TN Trader

There’s certainly some tension across markets ahead of Mr Trump’s speech, with investors unsure if he will be deploying the carrot or the stick, or a combination of the two, and in what order?

UK inflation jumped higher. Headline CPI (including food and energy) rose to 3.4% year-on-year. This reversed the better-than-expected reading from the previous month, although it is still below the recent peak of 3.8% from last October.

It’s of little consequence as the Bank of England has only just cut rates and was unlikely to repeat the measure at its next meeting. But it does indicate that UK inflation remains ‘sticky’.

Meanwhile, European leaders continued to push back against the US President’s Greenland ambitions. So far, Mr Trump has refused to rule out military options, while reiterating tariff threats against countries opposing his plans.

The US dollar was steadier this morning against most of the majors. Yesterday saw sharp moves in the greenback. The Dollar Index plunged in early afternoon trade in a move which saw the index break below 98.00. But the selloff reversed quickly, and investors appear to be taking a fairly neutral position this morning as they prepare for President Trump’s speech at the WEF in Davos later today.

Source: TN Trader

The reemergence of tariff threats, the possibility of a new trade war and all-around geopolitical uncertainty are weighing on confidence. The fact that the fresh dangers have all come from the US via the Trump administration has only exacerbated the risks for investors.

Meanwhile, the Japanese yen was a touch firmer against the majors. The USD/JPY fell towards 158.00, reducing the likelihood of intervention from Japanese policymakers to support the yen.

Analysts believe that Japan's Ministry of Finance, possibly with help from the US, would look to intervene physically should the USD/JPY push up to 161.00-163.00. But with all the uncertainty ahead of Japan’s general election on 8th February, the yen is likely to face additional volatility. Before that, the Bank of Japan meets at the end of this week, although it is expected to keep interest rates unchanged.

Gold was the standout mover overnight, surging more than 2% to fresh all-time highs just below $4,900. The move reflected a powerful ‘flight to safety’ move as President Trump’s tariff threats reignited investor anxiety and revived the “sell America” narrative.

Analysts now openly discuss the prospect of $5,000 gold, underscoring how stretched sentiment has become. While gold has trimmed some of its intraday gains, the broader backdrop remains supportive. These include the possibility that the US dollar continues to soften, particularly as the US Federal Reserve is expected to ease monetary policy further this year.

On top of this, persistent geopolitical uncertainty continues to underpin the precious metal. Any pullbacks so far appear corrective rather than trend-breaking, with investors keenly focused on the US President’s speech in Davos later today.

Source: TN Trader

Silver, meanwhile, consolidated after approaching $96 per ounce yesterday afternoon. While price action has cooled, silver continues to benefit from haven demand and overall dollar weakness. For now, gold dominates the narrative, but silver continues in its role as a volatility-rich companion trade.

Source: TN Trader

Front-month WTI traded above $60 per barrel this morning, extending its winning streak to four days, as things stand. Support came from a production halt at Kazakhstan’s Tengiz and Korolev oilfields, where output disruptions may last as long as ten days due to power issues.

Source: TN Trader

This added to a recent uptick in investor sentiment towards the crude oil market and energy in general. Some analysts have suggested that crude oil and associated companies could be the focus for the next bull market, in just the same way as the one in precious metals is currently playing out.

They argue that sentiment has been too pessimistic for too long, and prices have fallen to such an extent that some producers are shutting up shop as the cost of production is such that they are struggling to sell their product at a profit.

This plays into the adage that the cure for low oil prices is low oil prices, as supply falls to such an extent that prices soon pick up again. Maybe so. Crude oil has certainly broken out of its downtrend since August. Although the chart isn’t quite as bullish on a longer perspective.

Fundamentally, the upside may still be capped by broader concerns around global growth and trade tensions. President Trump’s renewed tariff threats and escalating disputes with Europe have revived fears of slower demand, while expectations of rising US crude and gasoline inventories also weigh on sentiment.

Venezuelan developments remain a focus, with US authorities seizing additional oil tankers as sanctions enforcement tightens. With no US inventory data released due to the holiday delay, markets are largely marking time.

Natural gas prices surged again this morning, extending an already explosive move.  Supply concerns continue to dominate price action, keeping volatility elevated and making this one of the most aggressive markets on the board. The sharp rally highlights how tight conditions have become, with price swings reflecting heightened sensitivity to any disruption.

Bitcoin and Ether fell sharply yesterday in a move which saw the former trading below $90,000 and the latter back under $3,000. Both have managed to steady this morning and are currently holding within their respective bands of support. But it’s worth noting that Bitcoin has lost around 10% over the past week, while Ether has fallen 14%.

The question now is whether these two cryptos are ready for a short-covering bounce-back, or if this is simply a pause before they take another leg lower? The bullish set-up that had been developing over the past month is in jeopardy. But much now depends on investor risk appetite, and if there’s a recovery in equities following the tariff-triggered sell-off over the last few days.

The VIX pulled back from yesterday’s highs in early trade this morning as traders reacted to a modest overnight recovery in the S&P 500. But it began to pick up again as midday approached, and as US stock index futures gave back early gains.

Volatility, as measured by the VIX, has not yet hit ‘danger’ levels. But it remains elevated enough to signal lingering uncertainty beneath the surface. Traders remain alert, particularly with major political events and earnings still ahead.

Attention now turns squarely to Davos, with President Trump’s speech the wild card as far as investors are concerned. Mr Trump is expected to set the tone for the next phase of market action. Earnings from Dow components Johnson & Johnson and Travelers are due, while bond market weakness and the sale of US Treasuries by Danish pension funds add another layer of concern.

Is this selloff a buy-the-dip opportunity, or the start of something more sustained? Have gold and silver moved too far, too fast? And will Trump’s remarks soothe markets, or pour more fuel on smouldering embers?