The ‘Buy Everything’ Trade Cools As Barren Week Draws To An End

WHERE WE STAND – I was thinking yesterday (a rarity, I know!), about how dull and uninspiring things have been this week.

Not necessarily from a market perspective, where we’ve had even more gains in gold, new records on Wall Street, and a rebound in the buck to keep us on our toes, but certainly from the perspective of fresh fundamental developments, especially as the US government shutdown, and accompanying data void, continue, with no sign of coming to a conclusion any time soon.

Anyway, I guess the biggest takeaway from the last few days is that, once more, almost everything seems to have become one trade – stocks on both sides of the pond, gold, and silver all rallying together, with the dollar also firming, and even crude managing to find a bit of a bid. What we seem to be looking at, then, is a market that remains firmly in ‘buy everything’ mode, and will probably remain so for the time being, at least given the aforementioned dearth of catalysts that could potentially derail things. As I explain below, I’d wager that said path remains intact, even despite yesterday’s wobble.

It's not just an anecdotal feeling that things have all become rather subdued of late. A quick glance at SPX realised vol backs this idea up, with 30-day realised vol as near as makes no difference at its lowest level since the back end of 2021. This is, of course, what you’d expect to see in a market that’s been trending steadily in one direction for a very long period of time, but it is nonetheless stark to see how calm things have become, in contrast to the chaotic nature of proceedings around ‘Liberation Day’ just six months ago.

Calmness did rather sum up the ‘vibe’ of trade yesterday, at least until I left the desk for some post-work refreshments, and all hell appeared to break loose…correlation is not causation, etc.

The most notable moves on the day again came in the precious metals complex, with PMs appearing to lose their lustre a little as trade wore on, though the move was more reflective of some profits being taken around big figures - $4,000/oz in gold, and $50/oz in silver – than anything fresh in terms of fundamental developments. In fact, the bull case for precious metals at large remains a very solid one indeed, as mentioned numerous times in recent notes, while momentum still firmly favours further upside too. Even though we’ve come a very long way, very quickly, there’s little sign of the complex putting in a top any time soon.

Elsewhere, a bout of profit taking also hit the equity market, with stocks taking a relatively modest leg lower on Wall St, while Treasuries also traded softer across the curve, not helped at all by a soggy 30-year auction. Nevertheless, my view remains that dips in the equity complex should still be viewed as buying opportunities, with the ‘path of least resistance’ continuing to lead higher amid resilient underlying economic growth, robust earnings growth, and a looser Fed policy backdrop.

Incidentally, that ‘run it hot’ Fed approach continues to benefit the greenback, which gained ground broadly against most peers yesterday, with risks to the buck, and to the US economy at large, now tilting firmly to the upside.

Naturally, rather downbeat macro outlooks, coupled with a healthy amount of political uncertainty, elsewhere are also helping the dollar to gain ground. On that note, USD/JPY briefly traded north of the 153 figure yesterday, the JPY’s weakest since February, as fallout from Takaishi’s surprise victory in the LDP leadership race continued. Rather foolishly, one of Takaishi’s advisers decided yesterday to remark that “USD/JPY is unlikely to surge above 155” – so guess where the big fat target now lies for market participants!

Still, it’s not just Japan grappling with political uncertainty, with French PM Macron also scrambling on that front, trying to find a sixth prime minister in a little over two years. No surprise that the EUR remains on the back foot as a result, with the OAT-Bund spread also set to widen further. Closer to home, the quid also faces headwinds, with cable yesterday trading south of 1.34, and to its lowest levels since the back end of September. Clearly, the government’s latest idea to spur economic growth – permitting pubs to open until the early hours – wasn’t especially well-received, even if this might be a government policy that I can finally get behind; for the good of others, of course, as that’s way past my bedtime!

LOOK AHEAD – Right then, it’s finally Friday, and another relatively light docket awaits as the week wraps up.

Highlighting things, and I’m being generous using that word, will be this afternoon’s UMich sentiment data, with the index set to dip to 54.0 from 55.1 last month. Such a decline isn’t especially surprising, given the generally negative tone surrounding the ongoing government shutdown. Speaking of negativity, another grim Canadian jobs report likely awaits this lunchtime, with just 5k jobs set to have been added last month, and unemployment set to tick up to 7.2%.

Other than that, there’s just a smattering of Fed speakers due throughout the afternoon, though my mind will be more preoccupied by what tipple I fancy to see in the weekend later on, as opposed to that lot reiterating ‘data-dependency’ for the umpteenth time.