Market correlations were a bit of a mess on Monday, as commodities like gold and crude oil caught strong gains while U.S. equities closed in the red.
In the forex arena, the dollar started on the back foot then picked up on safe-haven flows but still ended the day on a mixed note.
Here are the latest updates you need to know.
Headlines:
- Germany’s elections resulted in a lead for center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU), but a coalition still needs to be formed to secure a majority
- Last week, cryptocurrency exchange Bybit reported that hackers stole $1.5B worth of crypto assets
- New Zealand headline retail sales up 0.9% q/q in Q4 2024 (0.5% expected, 0.0% previous); core retail sales up 1.4% q/q (0.2% forecast, -0.6% previous)
- New Zealand credit card spending rebounded 1.3% y/y in January (-1.3% previous)
- U.S. imposed new oil sanctions on entities linked to illicit shipments of crude oil from Iran
- German Ifo business climate index unchanged at 85.2 in February (85.9 forecast)
- Eurozone final headline CPI confirmed at 2.7% and final core CPI at 2.5% as expected
- BOE MPC member Dhingra said the central bank is already at a high level of policy restrictiveness
- U.S. Dallas Fed manufacturing index down from 14.1 to -8.3 in January
- U.S. Chicago Fed National Activity Index for January 2025: -0.03 (0.21 forecast; 0.15 previous)
- U.S. President Trump declared that Russia-Ukraine war “could be over within weeks”
- Deal between U.S. and Ukraine on minerals appears to be near completion – Axios
- Russian President Putin expressed willingness to cooperate with U.S. on rare earths materials and aluminum deal, no objections in European participation in Ukraine peace talks
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
Markets had a mixed performance today, as investors reacted to economic data suggesting a cooling U.S. economy and a fresh batch of geopolitical developments. The day started off with the spotlight on the German election results from the weekend, though initial market reactions quickly faded.
The Dallas Fed’s monthly survey of Texas manufacturers delivered concerning data, with the production index falling to -9.1 from 12.2, indicating contraction. Underlying data reflected a sharp rise in input prices, with the prices paid for raw materials index jumping to 35 from 17.5, suggesting increasing inflationary pressures despite the economic slowdown.
After gaining ground on positive bond auctions, Treasury yields turned lower upon seeing the Dallas manufacturing survey, with the U.S. 10-year yield declining 0.74%. Equities initially dipped on the weak manufacturing data but began rebounding on geopolitical news.
Reports that the U.S. and Ukraine were finalizing a minerals deal, described by Treasury Secretary Bessent as being “on the 1-yard line,” provided some optimism. Market sentiment further improved when President Trump suggested that the Ukraine-Russia war could end “within weeks.”
Putin added to the geopolitical drama by stating the U.S.-Ukraine rare earth metals deal was “none of his business” while expressing willingness to cooperate with the U.S. on rare earth metals and aluminum through joint projects.
By the close, markets remained mixed with the Dow slightly in the black while the S&P 500 and Nasdaq remained in negative territory.
WTI crude oil performed strongly (+1.20%) driven by another round of U.S. sanctions on Iran-related oil entities while Bitcoin maintained its recent bearish momentum likely on account of a huge theft in cryptocurrency assets of Bybit. Gold also edged higher, with XAU/USD gaining 0.48%.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The dollar was off to a shaky start, as risk appetite appeared to be in play after the German elections over the weekend. However, market jitters quickly returned as the focus turned to Russia-Ukraine negotiations and Trump’s upcoming speech much later in the day.
Individual catalysts also drove currency price action, with the euro initially marked higher before post-elections gains were erased a few hours into the Asian session. Data flow was light, sparking some consolidation among most of the major pairs during London market hours.
The Greenback stalled on its climb and chalked up notable losses to its safe-haven rivals when the Dallas manufacturing survey reflected concerning results, although it held on to some gains versus commodity currencies and rebounded against the yen towards the end of the NY session.
Upcoming Potential Catalysts on the Economic Calendar:
- German final GDP at 7:00 am GMT
- FOMC member Logan’s speech at 9:15 am GMT
- U.K. CBI realized sales at 11:00 am GMT
- BOE MPC member Huw Pill’s speech at 2:00 pm GMT
- U.S. S&P/CS Composite-20 HPI at 2:00 pm GMT
- U.S. CB consumer confidence index at 3:00 pm GMT
- U.S. Richmond Fed manufacturing index at 3:00 pm GMT
- FOMC member Barr’s speech at 4:45 pm GMT
- FOMC member Barkin’s speech at 6:00 pm GMT
Another relatively light day in terms of economic releases could keep the market spotlight mainly on geopolitical updates and Trump’s tariffs announcements.
Still, keep an eye out for low-tier and mid-tier data that could continue to reinforce a dovish Fed narrative, including the CB consumer confidence index and Richmond manufacturing survey. Keep your eyes peeled for cautious commentary during testimonies by FOMC members as well!
Don’t forget to check out our brand new Forex Correlation Calculator when taking any trades.
