US and European stock futures are trading higher as traders are picking up the momentum where they left off last week. The US stock indices ended the session on Friday by scoring gains; Dow Jones industrial average surged 1.2%, the S&P 500 gained 1.4%, and the Nasdaq gained 1.7%. The gains in the Nasdaq index are of special interest to many traders as they believe that it is the tech sector that is more than likely to pull markets out of their misery as the Fed is bound to cut the interest rate by the end of this year.
Having said this, there is a sense of caution among traders and investors, and some are very sceptical about backing riskier assets after the banking crisis erupted towards the end of the week. So far, regulators and lawmakers have worked together to keep the crisis under control, and they have used all the help they could to do so. This particular element is keeping the hope alive that whatever the issue was with Deutsche Bank, lawmakers are going to address it, as there is simply too much to lose if things are left alone.
On the economic docket front, over in Asia, we saw Chinese industrial numbers plunge 22.9% in the last two months—the reading saw a decline of 4% in industrial profit in December. The data showed weakness for the Chinese yuan, which was already on the back foot against the dollar index. Having said this, it is not all doom and gloom in China, as the International Monetary Policy Funds have revived confidence among traders about the future growth prospects in China. The IMF said that there are signs that the Chinese economy is getting better, which gave investors more confidence. The fund is now predicting that China’s GDP will grow by 5.2% instead of the 2% it predicted before.
On the Fed’s monetary policy front, Neil Kashkari, Minneapolis Fed President, added further noise to the exiting stance that many traders hold about the Fed’s monetary policy. He believes that the current policy adopted by the Fed has brought banking stress to the financial system, and there are far greater chances for the US to face recession. The underlying message is that the Fed should be easing off on its approach to increasing the interest rate, but many traders and investors are already sort of factoring that in. It is widely anticipated that in the next Fed meeting, there will be no more interest rate hikes, which keeps all the sizable gains for the dollar index in check and also increases the prospects of equity markets switching into bullish mode—after all, traders are addicted to loose monetary policy.
Gold Prices Today
The precious metal has started the week on the back foot, and we do see the price shying away from testing its all-time high. But this doesn’t mean that another cycle of retracement is going to begin in terms of the gold price. We believe that the odds are strongly stacked in favour of the gold price for a number of reasons. For instance, we have strong odds of the Fed easing its hawkish monetary policy, and it is likely that we may have already reached the peak in terms of the interest rate cycle; if not, it is highly likely that we are not far from level now. This makes the case a lot stronger for the gold price to move higher as the dollar index will begin to lose steam further. Another interesting element is that the threat of a US banking crisis or a European banking crisis is keeping traders very much on their toes; if one looks at the CDS spreads and the levels that they are trading at, it becomes clear that there is still a lot of lack of confidence among investors who believe that the chances are far greater for things to crash first before they recover.
Oil Prices Today
Brent and crude oil prices are struggling to move higher as traders are concerned about the health of the US economy and the on-going crisis in the banking system. However, it is important to note here that traders should take everything with a pinch of salt and must pay attention to the bigger picture. The second-biggest economy in the world, China, is still experiencing decent growth; we already saw the IMF updating its forecast, and the institute believes that the country is going to post strong growth numbers. We believe that traders have paid less attention to this material fact, and this is keeping oil prices attractive at current levels for smart money. Secondly, the US has reached its peak in terms of its interest rate cycle; the banking crisis seems to be contained, and the Fed isn’t going to keep the fire going when they know that the problem was ignited by them. This means loose monetary policy is more than likely to come, which would make oil prices go higher.
Bitcoin
Bitcoiners are having the time of their lives, and they are laughing all the way at the Fed, which is always late to the game in controlling the crisis. Their argument against a central system has gained more power, and the crisis in the banking system is very much fuelling the rise in the Bitcoin price. Having said this, we think that the upward momentum that we experienced in the past few weeks is losing some of its charm as the price has started to consolidate ahead of an important psychological price level of 30K. We must see the BTC break very comfortably above this price and stay above this price mark if the rally is going to continue its journey towards its next important resistance of 50K.
