Is it time to move past the narrative on trade tariffs, if not trade friction? The stage is set for signing the Phase One deal this week. But don't forget the details are still sketchy. However, importantly for risk, and given the very modest expectations of a breakthrough on some of the more material issues around this truce, the hurdle to disappoint should be relatively high. But when things look too good to be true, it might be time to pause due to unpredictability of the Trump Twitter Feed.
Next week's docket will provide an update on inflation trends; these prints and inflation directions be will be an essential policy forming theme this year. Fed officials will soon enter the nub of their policy review over the next several months—the critical debate centering on if or not the FOMC will adopt an average inflation targeting strategy.
The Fed policy review will likely lead other Central Banks towards policies that are more sympathetic to average inflation targeting, with a skew to more accommodative bias. Suggesting to me anyway now is as good a time as any to own gold.
Gold Markets
Gold's surge back through $1600 earlier this week to levels not seen since 2013 and has further cemented its safe-haven relevance. As the market retraces and ponders when to time the next explosive move higher, it is worth highlighting some of this year's stories so far
Physical demand remains tepid. Demand from India, the second-largest importer of gold, remains weak, and the $5 discount to loco London prices highlights the lack of interest to chase the price. China import tariffs were approved early in response to the timing of the Chinese New Year holidays. Still, there has been minimal uptake in physical form, according to my gold selling colleagues on the mainland.
Strategic gold investors found some peace of mind above $1540/oz and were all over the dips, while insiders report, and quant modeling suggests CTAs are maxed long gold again.
Not all signals are aligned as risk continues to froth, but the outlook for gold remains constructive. The uncertainty around the macro environment and escalated geopolitical risk continue to favor keeping a core long in gold. This suggests that positioning has scope to linger at elevated levels for some time. Much has been made about the length of IMM and ETF gold positioning, but the weight as a percentage to total AUM remains low relative to the highs during the previous bull-run. I think allocations to gold have room to continue growing over the medium to long term, sustaining the price uptrend. It does give rise to the bid on dip mentality, with a view for a test of the recent highs in due course.
Asian Currency Markets
Without Iran related energy disruption, additional non-OPEC supply will comfortably exceed demand, placing downward pressure on prices, which is favorable for growth. While not great for oil prices, it does make those Asian markets even more appealing, given the slightly better regional economic environment.
Outside of last week's oil price shocker, Asia exporter currencies, and in particularly high yielders, have been in massive demand as inflows have notably increased into the INR, IDR, PHP, and MYR. If there has been one thing that has stood it in currency land this year is " Carry is King."
Traders are also in a riskier mood as the Yuan, Asia key bellwether is trading on an even keel, which bodes very well for ASEAN currencies next week. But the USD/HKD remains bid as traders fade the move lower as it approached the bottom of the trading band.
Oil Markets
Oil continued to move lower into the weekend with middle east risk turning to dust, compounded by swelling US inventories and then unceremoniously thumped by a bearish for demand IEA report.
Having spiked and then fallen back to a pre-political risk level all within a matter of days, the crude oil price displayed a semblance of serenity over the last 24 hours. All else equal, focus is likely to return to the details of supply/demand, assessing OPEC production, the US shale growth slow-down, and of course, global economic activity.
Very happy to be back to normal!!!
I'm going to issue a "Let's Make a Deal, " note on Monday, but with all my positions sitting in a comfortable risk basket and no other thoughts to put down on paper, it's now time to hit the golf course finally.