Driven by improving news and expectations of a global growth rebound, US investors are moving out along the risk curve. And importantly, markets are now in the process of pricing in the soft landing for the US economy, and Europe no longer appears headed towards a recession. With global stocks rallying, hopes spring eternal the dark days of 2022 are behind us from an asset price perspective.

European investors had feared a spike in gas prices and regional hard landing this winter; the reality is that the opposite has transpired in energy dynamics – a collapse in TTF spot and forward prices, owing to a combination of warm weather, consumer savings and high LNG imports has removed the heaviest layer of gloom.

Oil prices are starting to feel China’s reopening influence, but the lagged effects of accelerated monetary tightening on the US economy by the Fed is still a key sentiment headwind. However, we are learning quickly that the US economy can easily tolerate higher rates; hence the street’s US pessimistic growth outlook is bound to be revised higher rather than lower. And this should support oil prices beyond China’s borders.

With global risks coming down, US cash on the sidelines is just starting to be deployed in Europe and China; since there is much more of this reallocation to run, the EURUSD should trade much higher in the coming weeks.

Even with the growth outlook improving, gold could still catch a tailwind from a weaker yet still highly valued US dollar.


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Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT