Asian Pacific equities recover

US stock index futures soared higher in early trade this morning, adding to yesterday’s gains. Both the NASDAQ and S&P 500 fell to four-week lows ahead of Wednesday’s open as traders cut their exposure in advance of President Trump’s appearance at the World Economic Forum in Davos.

Mr Trump had taken an exceptionally aggressive stance towards Europe ahead of his speech. He insisted that nothing was off the table when it came to the US taking possession of Greenland, while threatening eight European countries and NATO allies with fresh tariffs if they continued to oppose him.

Indeed, he began his speech by excoriating Europe, insisting that it was on the wrong path and had been for years. But he also said that the US didn’t need force to get what it wanted, effectively scotching investors’ worst fears of military action over Greenland.

This was all that was needed to trigger a strong ‘buy the dip’ move from traders and investors alike. The rally gained momentum after Mr Trump removed his European tariff threat and announced that he had ‘formed the framework of a future deal with respect to Greenland’, following a meeting with NATO Secretary-General Mark Rutte.

There were no details, but investors didn’t care. Once again, the ‘buy the dip’ strategy proved profitable, especially when combined with the TACO trade (Trump Always Chickens Out).

So, all the huffing and puffing over Greenland and the prospect of a war between NATO members can be put to one side for now. In other matters, President Trump is expected to meet with Ukraine’s President Zelensky later today. But with geopolitical risk now taking a back seat, investors can turn their attention to domestic issues.

Today, these include quarterly earnings updates from Visa, Procter & Gamble, GE Aerospace and Intel. On the data front, there’s an update to GDP, along with weekly Unemployment Claims and Core PCE – the Fed’s preferred inflation measure. Speculation over who will become the next Chair of the Federal Reserve should also reemerge as a major talking point.

President Trump has said that he wants to keep the former favourite, Kevin Hassett, in his current role as Director of the NEC. This led to an increased probability that Kevin Warsh would replace Jerome Powell when the latter’s term expires in May.

Technically, the S&P 500 is close to filling in the downside gap which formed after Monday’s lower open. The fact that there was no prolonged break below a band of support around the 6,800 area is also constructive from a bullish perspective.

The big test will be how the index performs from here. It may be on its way to making back this week’s losses. But does it have enough upside momentum to break above resistance just under 7,000?

Source: TN Trader

European stock indices opened modestly lower this morning. This suggested some reticence on the part of investors who perhaps weren’t fully convinced by yesterday's sharp snap higher across US markets. But as US stock index futures gained strength and upside momentum grew, European indices began to follow them higher.

Source: TN Trader

In fairness, Europe posted a significant recovery yesterday, particularly after President Trump removed the military threat regarding Greenland, and then followed this up by removing his tariff threat against his European NATO allies.

After the President met with NATO head Mark Rutte, Mr Trump claimed that a framework was in place for a deal over Greenland but declined to offer any details.

While this is all fine and dandy, investors would do well to consider just how quickly this week’s upset evolved. And bear in mind that it all started over a weekend with a blurt of aggressive rhetoric from Mr Trump aimed at NATO allies.

It was a slow start across Forex this morning, with most pairs largely directionless, consolidation after recent volatility being the name of the game. The cash Dollar Index was trading either side of 98.50, having slumped below 98.00 on Tuesday, hitting a two-week low.

The dollar has steadied following the apparent end to the Trump administration's brinksmanship regarding its demand to own Greenland. The EUR/USD traded in a relatively tight range as it pushed up towards 1.1700. The Japanese yen was once again weaker across the board and hit a fresh all-time low against the euro.

Source: TN Trader

This comes as markets recover from the plunge in Japanese Government Bonds earlier in the week, following a promise of an unfunded tax cut from Prime Minister Sanae Takaichi. There’s a lot of uncertainty ahead of next month’s election, and investors will focus on the Bank of Japan’s monetary policy meeting, which concludes tomorrow.

Gold pulled back a touch from yesterday’s all-time high of $4,888. Despite the unwinding of this week’s geopolitical upheaval concerning the proposed US takeover of Greenland, gold managed to hold on to most of its recent gains. It continues to find support from expectations of further Fed rate cuts, a subdued US dollar and overall bullish momentum.

But there are considerable downside risks to the trade. Gold may be on its way to $5,000 as many bulls insist. But it may require consolidation or a pullback first. The nature of any pullback may offer clues as to where prices go next.

Source: TN Trader

Meanwhile, there are signs that silver is consolidating after its incredible surge to fresh all-time highs. Having traded at a record level of $95.88 on Tuesday, prices pulled back towards $90 before stabilising. The big question now is whether the sideways move over the past few days is a healthy consolidation ahead of another push higher, or if silver is finally losing its upside momentum.

Many bulls believe that it will eventually trade at $100 per ounce. It may do, and that target isn’t all that far away. But the danger is that silver suffers a significant pullback before it can reestablish enough upside momentum to take it up there.

Source: TN Trader

Crude oil fell this morning in a move which saw it give back most of yesterday’s gains. Front-month WTI continues to trade below resistance, which comes in around $61.30. But it has yet to fall back within the downward trendlines which had been building since August.

It could be that the power of the short sellers is fading somewhat, despite the long-running forecasts of a continued slowdown in global demand growth even as supply remains plentiful. The prospect of increased Venezuelan supply has been offset to some extent by stories of production cuts as some US producers struggle to profit with oil prices mostly stuck under $60 per barrel.

Source: TN Trader

Natural gas edged up again overnight. Considering the overnight high, gas has now jumped 42% over the past week. Despite this, gas has not yet made back even half of the losses it experienced over the five weeks since early December. The market continues to trade in a wide and volatile range, offering opportunities for short-term traders. Volatility remains the defining feature in this space.

The price of Bitcoin was stuck around $90,000 in early trade on Thursday, while Ether hovered near $3,000. Both cryptos fell sharply over the first two days of this week, following the selloff across global equities as investors cut their exposure to risk assets.

The trigger for this move was President Trump’s aggressive rhetoric concerning a US takeover of Greenland. While equities bounced after Mr Trump insisted that he would not employ a military option to force the issue, the reaction across cryptos was surprisingly muted.

The concern for the bulls is that this week’s pullback has done some technical damage. For now, the broader outlook suggests uncertainty, with some doubting the likelihood of an imminent recovery.

S&P 500 volatility, as measured by the VIX, continued to decline in early trade this morning. This week saw the index jump sharply after President Trump’s comments about Greenland, which began in earnest over the weekend.

The move took investors by surprise, as the VIX had spent a long time trading at subdued levels, indicating a degree of complacency. As Mr Trump toned down his rhetoric and the S&P rallied, the VIX headed lower. But if there’s a lesson from this week’s events, it’s that a spike in volatility can come out of nowhere. Fortunately for the bulls, it wasn’t sustained.

Earnings updates and data releases take centre stage today, with results due from Visa, Procter & Gamble, Intel and GE Aerospace. There is also a final revision to GDP, weekly Unemployment Claims and Core PCE inflation. President Trump says he has a favourite for the Fed chair role (thought to be Kevin Warsh), Nvidia’s CEO downplays AI job fears, and Elon Musk is set to speak in Davos.

A Greenland deal may be in place, and it appears that tariffs are off the table, for now. Once again, the stock market dip was short-lived. The yen weakens, volatility retreats, and the bulls are back in control. Keep an eye on gas — it’s starting to behave like the new silver.