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“The tongue hath no force when gold speaketh.”

“The tongue hath no force when gold speaketh.”

Markets in China are suspended for trading all week for the Lunar New Year and last night there was no trading in major financial centers including Hong Kong, South Korea and Singapore. With the lack of Asian trading volumes we have seen far greater volatility on money markets and equity markets. Increased currency volatility and the feeling that central banks are running out of tools have sent investors flocking to safe havens like gold, core bonds, the Yen and the Euro. Brexit arguments are turning increasingly emotional and associated headlines will not help Sterling in the short term by raising uncertainty and disincentivising inward investment.

With another near empty economic calendar today for both Europe and the US, most movement will be governed by “risk off” sentiment. For the Dollar, we have to wait until tomorrow for the Fed Chair Janet Yellen’s testimony before Congress outlining the current economic climate in the US and the policies in place. As usual, the markets will be looking for any indication of where the Fed position themselves against their original target of four rate hikes this year, though this is already in question as the global slowdown weighs on their forecasts.

Friday’s mixed labour results are also likely to affect the Federal Open Market Committee and their decisions going forward. Though the Nonfarm Payrolls number came in below expectations, unemployment had improved to 4.9%. Additionally, weakness in services sector employment is likely to keep uncertainty about the state of the economy elevated. Divergent signals from the employment reports, coupled with wider volatility in the global financial markets, suggest that the Fed are going to have to revise their targets.

Portuguese and Greek bond yields jumped 25 basis points (bp) and 61bp respectively whilst Spanish and Italian bond yields rose more than 10bp, indicating investors are extremely worried about the effectiveness of central bank policies. Greek stocks also dropped to their lowest level since 1990 on reports that the Greece bailout review stalled. According to Reuters, “talks between the heads of the EU/IMF mission and the government discussing a tough pension reform plan, fiscal targets and the handling of bad loans took a break on Friday after four days and should conclude [in] two weeks’ [time]”.

If Greece fails to secure additional funding, investors can expect another round of headaches for the Euro. Voter fatigue is becoming a serious problem after five years of negative headlines and there may not be enough political will to provide additional support to Greece. The Euro is currently rallying because it is a deeply sold funding currency and it may not be long before we hear renewed concerns from the central bank and talk of more easing. This coincides with a 13% rise in the value of gold this year showing that risk appetite is seriously depleted; “any port in a storm”.

Data to watch: 9.30 GBP Trade Balance non-EU & Total Trade Balance. 21.30 US API Weekly Crude Oil Stock.

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