Geopolitics on the radar

Danske Research Team Danske Bank A/S

In focus today

Geopolitics are expected to be the main market driver as the data side remains relatively quiet. The main data release is set to be the Central Bank of Hungary's rate decision, which we - and the consensus - expect to be unchanged at 6.50%. Additionally, CPI figures for Canada will be released just after.

Economic and market news

What happened yesterday

In the Middle East, the ceasefire between Israel and Hamas resumed in the wake the most recent exchange of violence. Both sides, along with US President Trump, agreed that the brokered ceasefire remains in place.

In the trade war, the US and Australia signed a critical minerals deal, with both nations committing to invest over USD 3 billion in critical mineral projects within the next six months. The deal includes the Pentagon investing in a gallium refinery in Australia and Australian pension funds increasing investments in the US by almost USD 1 trillion to USD 1.44 trillion in total.

Equities: Global equities kicked off the week with a strong risk-on flavour, at least at first glance, as major indices rose more than 1% across regions and, broadly, across sectors. The US led the cyclical tilt, but gains were widespread. That said, despite the strong equity performance, the cyclical rotation, and a lower VIX, this was not a classic risk-on day.

Long-end US yields moved lower, gold continued its surge, and oil actually fell. In other words, this looked more like an "everything rallies" driven by liquidity and optimism rather than renewed confidence in macro fundamentals. Such rallies tend to have a disinflationary bias, with easier financial conditions feed back positively into the broader economy, but without necessarily signalling a strong fundamental reacceleration. In the US yesterday, Dow +1.1%, S&P 500 +1.1%, Nasdaq +1.4%, Russell 2000 +1.9%. Asian equities are higher again this morning, and both European and US futures are extending the positive tone.

FI and FX: Market optimism carried into a relatively quiet start to the week, with risk assets performing well. Front-end US yields were broadly unchanged, while the 10-year Treasury yield declined 4bp, once again moving below 4.00%. The move left the US curve modestly bull flattening. EUR/USD is drifting lower, with the USD broadly firmer across the G10 to start the week. USD/JPY has moved higher toward 151, as the JPY weakens across the G10 with Sanae Takaichi set to become Japan's next prime minister. EUR/SEK price action has been defined by the broader 10.90-11.10 range. Similar to SEK, the Norwegian Krone also enjoyed the improving risk appetite during yesterday's session with EUR/NOK completing the full move down to the 11.70 support level.

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.