Sentiment Stays Shaky As Uncertainty Lingers

WHERE WE STAND – Just the one day of decent-ish risk appetite is all ‘Mr Market’ seemingly wants to provide for now, with sentiment again on somewhat shaky ground yesterday – albeit with stocks recovering intraday losses to close in the green, despite Treasuries rallying across the curve, and the yellow metal continuing to find plenty of love.

Jitters crept in early in Wednesday’s session, as participants continued to digest disappointing Alphabet (GOOGL) earnings, chiefly focusing on stalling revenue in the all-important cloud division, and a surge in CapEx. Both of these factors that of particular concern given the recent emergence of DeepSeek, the Chinese firm which has claimed to achieve comparable performance to the AI models developed by US ‘big tech’ names, albeit at a fraction of the cost.

GOOGL wasn’t the only tech name pressured yesterday, though, with Apple (AAPL) also facing headwinds, amid reports that China are to begin a probe into the firm’s practices surrounding the App Store.

The timing of such a probe is far from coincidental, and speaks to the bigger picture in terms of retaliation to tariffs imposed by the Trump Administration. While tit-for-tat retaliation via equivalent trade levies remains an option, it seems increasingly likely that retaliation will also take the form of going directly after US companies, and making their lives as difficult as possible. It seems, per FT reporting, that this is a strategy that the EU may also be seeking to pursue, if Trump were to impose tariffs on the bloc.

Given Trump’s cosiness with ‘big tech’ CEOs – just look at the inauguration photos – perhaps probing their firms in various investigations, and hoping they lobby the main man to ease up on tariffs, isn’t the worst strategy in the world.

Anyway, amid all this, the level of uncertainty around trade policy clearly remains elevated, which in turn is likely to cap participants’ conviction for the time being; especially, with Amazon (AMZN) earnings, and Friday’s jobs report, still to come this week.

That said, the greenback has continued to soften, with the DXY sliding back towards 107 yesterday, printing MTD lows. In turn, the EUR has reclaimed the 1.04 handle; cable has notched one-month highs at 1.2550; the JPY has rallied to its best levels of the year; and, the loonie has gained further ground, with USD/CAD sliding under 1.43, having opened the week at the 1.48 figure.

While the rally in the loonie is logical, driven almost entirely by relief on the tariff front, I’m still in favour of fading USD weakness at this juncture. Haven demand should persist for the time being, with participants seeking shelter in the USD as a result of ongoing policy uncertainties, while tariffs themselves should cement the case for US outperformance, albeit only by virtue of the detrimental impact on the US economy likely being considerably less than that felt by DM peers. Effectively, putting the buck in a position of being ‘the best of a bad bunch’.

Finally, a word on gold once again, with the yellow metal notching record highs for the fifth straight day yesterday, climbing ever closer towards $2,900/oz in the spot market. Haven demand is the obvious catalyst behind the continued strength here, coupled with continued EM central bank demand helping things along as well. Momentum, clearly, favours the bulls at this moment in time, with those bulls unlikely to pause for breath until a seemingly-inevitable test of the $3,000/oz handle.

LOOK AHEAD – A busy data docket lies ahead today.

Focus will fall primarily on Threadneedle Street, where the Bank of England is expected to deliver a 25bp cut this lunchtime, lowering Bank Rate to 4.50%. Such a move, in what is likely to be an 8-1 vote among MPC members, would mark this cycle’s third rate cut, and is set to be accompanied with largely familiar guidance, noting that a “gradual” approach will continue to be taken, that policy must remain restrictive for “sufficiently long” to bear down on inflationary pressures, and that a meeting-by-meeting approach will continue to be followed. While the MPC may wish to ease more rapidly, sticky inflation doesn’t permit them to do so yet, and will likely also prevent any kind of dovish pivot at this stage.

Elsewhere, the weekly US jobless claims figures are due, though neither the initial nor continuing claims prints pertain to the survey week for tomorrow’s labour market report. The eurozone, meanwhile, gives us December’s retail sales report, as well as a couple of ECB speakers.

Finally, another busy day of corporate earnings awaits, undoubtedly highlighted by figures from Amazon after the closing bell, with options pricing a chunky +/-6.3% move in the stock after hours.