Week of 2 february

Markets fluctuated widely this week amid geopolitical concerns and weak earnings, with gold rising to $5600 before erasing nearly all gains by the end of the week. The FOMC kept rates unchanged as expected.

Besides potential geopolitical surprises as the US builds forces in the Middle East, markets will be looking forward to US NFP and rate decisions from the RBA, BOE, and ECB this week.

Week in Review

Markets were on a rollercoaster last week, with drivers of major moves at the start of the week almost completely omitted by Friday. Heading into the weekend, the focus was on Japan, as the yen dropped at the beginning of the week after reports that the NY Fed conducted a rate check. Oil prices also fell on Monday after Kazakhstan resumed supply, with Brent dropping to nearly $65/bbl. Silver rose 14% on Monday, only to lose all gains by the end of the day, a sign of severe volatility in the currency markets.

On Tuesday, US President Donald Trump suggested he supported a weaker dollar, sending the greenback to a 4-year low. Treasury Secretary Scott Bessent spoke on Wednesday in a bid to shore up the dollar. Also on Wednesday, the FOMC kept rates unchanged as expected, but the language turned hawkish despite two dissents, suggesting that interest rates would stay at the current level for longer.

Meanwhile, Trump heightened rhetoric against Iran, citing a significant military presence in the Middle East, sending crude prices to multi-month highs, aided by supply concerns amid storms in the US. Geopolitical concerns pushed gold to over $500 in just two days, reaching $5,600 per ounce on Thursday, while silver broke above $120.

Microsoft and SAP cloud demand disappointed, while Meta and Tesla surged, highlighting divergence amongst big tech stocks. Analysts noted that this earnings season has so far seen the fewest earnings beats in a year, with all major software companies seeing their stock prices fall after their earnings reports.

The trends of the week were erased late Thursday, after Trump appeared to confirm that he had already selected a Fed Chair nominee, with the press confirming on Friday that the nominee was former Fed Governor Kevin Warsh. Among the potential candidates, he is the most hawkish and has proposed that the Fed wind down its Treasury holdings, a move Bessent supports. The Thursday news precipitated a general unwinding of safe-haven assets, with gold and silver both erasing all their weekly gains. By Friday, gold was barely above $5,000, silver was back to $103, and Brent had risen to just over $70/bbl.

Biggest Market Movers

• Gold was up over 11% but erased most gains before the weekend but is still expected to have the best monthly performance in over four decades.
• Silver rose 19% at one point during the week, only to lose all those gains on Friday.
• On Tuesday, the dollar posted its worst single-day performance since April of last year following Trump's comments and did not recover by the end of the week.
• NZD and AUD gained the most from USD weakness amid rising commodity demand, with copper reaching an all-time high.
• USDJPY fluctuated widely amid rumours of potential intervention in the first half of the week, but rose as the dollar recovered and Bessent denied plans to support yen.

Top Events in the Week Ahead

Markets could once again be dominated by geopolitics, as conflicting reports suggest Trump will announce his pick for Fed Chair as early as next week. Traders are also eyeing developments in the Middle East with concern. On the data front, attention will be on the ECB and BOE rate decisions ahead of Friday's US NFP report.

NFP Rise Expected as Fed Focuses on Inflation

The main takeaway from last week's FOMC decision was that the Fed was no longer as worried about the labour market, as the unemployment rate has remained constrained. Markets will be testing this outlook with Friday's US labour data dump. NFP for January is expected to rise to 70K from 50K prior, while the unemployment rate is projected to remain unchanged at 4.4%. With gold holding the $5k line for now, the NFP is crucial for the precious metal. Losing that level would expose $4,650, while the prior peak of $5,620 might serve as a resistance.

BOE to Hold by Slim Majority

The Bank of England's monetary policy meeting on Thursday is expected to result in a pause after December's cut. The focus will once again be on the vote split, with analysts predicting a slim majority in favour of a hold. In fact, analysts expect MPC members to hold the same views at the last meeting, with Governor Andrew Bailey providing the swing vote. The result could mean the BOE's outlook will remain unchanged, but it could also add volatility to the cable as investors scrutinise Bailey's comments. If 1.3700 holds firm, bulls might attempt a run towards 1.4000, whereas a breakdown below might pave the way for 1.3575.

RBA Hiking in a Hot Economy

Economists are nearly unanimous in expecting the RBA to raise rates at its meeting on Tuesday, after Q4 inflation was hotter than expected at 3.4% and well above target. The decision is also aided by a drop in unemployment and strong consumer spending. Traders will be looking at Governor Michelle Bullock for signs on whether to expect further hikes. With nine consecutive sessions in the green but above 0.7000, whether bulls maintain the round support will likely depend on the announcement. Holding firm might see bulls reclaim 0.7100 for 0.7150, with a drop lower opening the door to 0.6900.

ECB On Hold Despite Euro Rise

The ECB is widely expected to keep rates on hold, as inflation remains on target. But the swift warning from officials after EURUSD popped above 1.2000 last week suggests the central bank has its eye on the exchange rate and could make a reference to it after the meeting. Too rapid appreciation of the euro could cause inflation to undershoot and might lead to a softening of the bank's rhetoric, which could weigh on the euro. The day before the ECB decision, the January preliminary Eurozone CPI is expected to tick down to 1.9% from 2.0% in December, with the core rate staying unchanged at 2.3%. As the fibre trades below 1.2000, resistance remains at the 1.2085 peak, followed by 1.2100. However, a dovish interpretation could push the eurodollar under 1.1900 and down to 1.1810, the late-December swing.

Other Events and Earnings

Monday has the China RatingDog PMI. For Tuesday, US JOLTS job openings are expected. The US ISM services PMI comes out on Wednesday.  Thursday includes German factory orders and Eurozone retail sales. Friday sees Canadian jobs data.

Earnings season peaks this week, with major names reporting, including Palantir, Walt Disney, GSK, Shell, Vodafone, AMD, PepsiCo, Alphabet, Eli Lilly, Amazon, Philip Morris, and ConocoPhillips.