Gold breaks $1,300

Government reopens but attention already elsewhere

Brexit votes, US/China trade talks, a Fed monetary policy decision and the US jobs report; this promises to be quite a week for financial markets.

And all of this comes as the US government ends a 35-day shutdown – the longest in history – after Trump agreed to sign a short-term spending bill, funding government for three week while negotiations on border security continue. It’s difficult not to see this as a bitter defeat for the President in the short-term, with polls indicating he was viewed as being more responsible for 800,000 workers going without pay.

With so much to focus on this week, it could get quite volatile in the markets. Wednesday’s Fed decision may be the least impactful of the lot, with the central bank having indicated that it’s going to take a more patient approach to tightening and with no fresh projections due until March, it may just sit this one out. There will be a press conference though which could be interesting, with Powell having agreed to do one after every meeting starting this year.

While the jobs report on Friday will always attract attention, the numbers are highly likely to be skewed by the shutdown so will be taken with a pinch of salt. That leaves the two big events this week, the vote in UK parliament on Theresa May’s plan B – and the amendments to it that are put forward – and the high level trade talks in Washington, with Vice Premier Liu He leading a delegation.

Investors have been paying very close attention to both of these events over a number of months and while the Brexit saga has primarily impacted domestic instruments – GPB, FTSE 100 and Gilts – albeit significantly at times, the trade war has had a wider and more significant impact on the markets overall. It could well be a very cagey week and all you have to do is look at Asia, where markets are relatively mixed to see that investors are taking a cautious approach to it. Europe also looks a little lower ahead of the start of the week.

Gold breaks $1,300        

Gold finally managed to break through $1,300 on Friday, aided heavily by a decline in the dollar which typically benefits the yellow metal. The move came after a couple of weeks of the dollar paring losses, with positive momentum in trade talks between the US and China weighing on the greenback. With high level talks taking place later this week, the dollar will be vulnerable again if progress is made.

Oil running out of steam

Oil also benefited from the decline in the dollar on Friday and the bounce in risk assets, albeit to a lesser extent. It has been on a good run since Christmas but has clearly run out of steam and looks prone to a bit of  a correction. If we do see this, then $59 and $50 look like key support levels below in Brent and WTI, respectively.