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11ukM

London Quick Take – 14 Jan - European stocks firmer after Wall St dips on banks, gold keeps rallying on Fed, policy and geopolitical risks, BP slides on kitchen sinking impairment charge

Equities 5 minutes to read
Neil Wilson
Neil Wilson

Investor Content Strategist

Note: This is marketing material. This article is not investment advice, capital is at risk.

TL/DR:


Geopolitical tensions and the threat to Fed independence are sauce for the goose as far as gold bugs are concerned. Gold rallied to a fresh record and dragged silver up to another all-time high as President Trump warned Iran would face “very strong action” if it did not “show humanity" in the face of ongoing protests in the country against the regime. Oil prices advanced sharply again yesterday before easing off a touch this morning. Markets are moving on these Trump headlines all the time now but the underlying narrative is still strongly supportive of precious metals even if crude markets are facing a glut in the rest of the year. Worries about a flare-up in Iran is all about closure of the Strait of Hormuz – a hackneyed headline risk for oil traders but one that does cause near-term concerns. Adding further fuel to the geopolitical fire, Greenland and Denmark’s foreign ministers will hold talks with US Vice President JD Vance and Secretary of State Marco Rubio later. Greenland's prime minister ruled out joining the US. He might not get a say in the matter.

Gold keeps cranking higher with spot prices moving to a new all-time high a whisker off $4,640, while silver extended its parabolic rally to clear $90. Crude prices were at three-month highs with Brent (continuous) running into resistance at the 200-day moving average around $65.75, as flagged in yesterday’s note. WTI spiked to $61.50 - as noted on Friday a clear break above $59 was likely to see a swift move toward the $60–61 area. The 200-day line sits around $62.40.

Apart from Iran and Greenland, gold is also higher because of the worries about Fed independence – it's maybe not that the market is explicitly baking in a looser Fed in 2026 that will do the bidding of the White House, it’s more a confidence signal in the value of money and institutions in the US. Political pressure on the Fed is nothing new – the idea of independence being sacrosanct is really a product of the 1990s – but it does tend to mean higher inflation expectations, higher term premia for bond yields – higher long-dated yields, and a weaker USD.

Gold is not just a hedge any longer. We have seen a paradigm shift in the way gold is being viewed as an asset class, which really started in 2022 when Russia invaded Ukraine and central banks started buying in size. That's meant the usual dynamic between gold as a function of real yields and the dollar has essentially broken down, and we have a new gold regime now. Gold has evolved from a cyclical macro trade to a strategic asset with flows and prices driven by structural demand from central banks, geopolitical fragmentation, and rising fiscal and monetary policy risks associated with financial repression – pressing down on bond markets to prevent yields blowing out. G3 fiscal policy will be very expansionary over the next few quarters, and I don’t think central banks are going to be hiking rates. If economies weaken then policy loosening – both fiscal and monetary – will support gold. But if economies remain strong gold benefits because the fiscal/monetary policy mix remains expansionary driving inflation up as economies attempt to devalue their debt. It’s the 4D trade I have talked about for a few years – debt debasement and dollar devaluation. This year in particular we see risks around Fed independence and questions over ‘fiscal dominance’ playing out as a supportive environment for gold. If equity markets fall then bonds are not the safe haven anymore, which again suggests gold is the strategic play. I looked at the ways the invest in gold here.

Asian markets edged higher, led by a more than 1% gain in Japan’s Nikkei as a weaker yen and renewed snap-election speculation fuelled hopes of fresh stimulus. European stock markets took the cue and rose in early trade on Wednesday with the FTSE 100 up around a quarter of a percent with support for the miners.

BP slipped 1% as it warned it will need to write down its green energy business by up to $5bn ahead of results due on 10 Feb. The write-down won’t affect the underlying results so the market reaction has not been too punishing. It's also a classic kitchen sink job by the new CEO, Meg O'Neill, who officially takes over in April. BP also reported that fourth-quarter gas sales will be $100mn-$300mn lower than in the prior quarter, while crude oil sales were $200mn-$400mn lower. Oil and gas production was flat and oil trading “weak”, but refining margins would be $100mn higher than in the previous quarter.

Yen weakness persists and remains one to watch for global liquidity risk – 159 on USDJPY means we are potentially approaching a level at which the Bank of Japan and Ministry of Finance could draw a line and intervene. The Finance Ministry last intervened on 12 July 2024, when USDJPY touched 159.45.

Wall Street slipped as policy risk crept back into focus with the Jay Powell situation, with financials bearing the brunt. The Dow fell 0.8%, while the S&P 500 lost 0.2% and the Nasdaq eased 0.1%. Financial and payments stocks sold off sharply as investors revisited Donald Trump’s proposal to cap credit card interest rates at 10%. Visa and Mastercard slid around 4%, catching up a bit with the move lower in Capital One and American Express as Trump reiterated his call for a 10% cap on interest. JPMorgan posted a solid Q4 earnings beat, but softer investment banking fees tempered the reaction and shares declined more than 4%.Management was explicit warning that a cap on card rates would ultimately hurt consumers by restricting access to credit. Delta Air Lines fell 2.4% after delivering a more cautious outlook for 2026 profits. Still, broader strategist commentary suggests earnings revisions for next year are more likely to trend upwards than down.

US December CPI printed at 2.7% year-on-year, bang in line with expectations. Core inflation stayed at 2.6%, its lowest since 2021, below the expected 2.7% That keeps the Fed on track for rate cuts later this year, even if equities struggled to gain. We've seen this before too - inflation is not taking off again but it will remain higher than it used to be. PPI inflation and retail sales data is due today - how K-shaped is the economy and does this matter for the stock market? Earnings today come from Citigroup and Wells Fargo. We also hear from a bunch of Fed policymakers, who could have some interesting takes on the DoJ subpoenas etc.


I had a look at some key investing themes for 2026 here
and
Read my look at some ideas for 2026 here.

 

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