It’s been an eventful start to the new year, and that isn’t expected to change any time soon. Although the calendar is light, we have major data points like US inflation data, plus there could be the announcement of the new Fed Chair as well as a decision on the legality of US tariffs. The latter is expected to see a rejection of the use of tariffs, but how, under what terms and how President Trump will respond are all highly uncertain.
As we wrote last week, geopolitical events don’t normally impact financial markets for long, and certainly crude oil has virtually shrugged off events in Venezuela. Despite having the world’s largest proved oil reserves, Venezuela’s share of world oil supply is a mere 1%. Furthermore, Venezuelan oil is heavy making it more expensive to process, while there are major questions marks around the big US oil giants wanting to invest in a notoriously volatile country. Interestingly, according to estimates, the breakeven oil price for new projects in Venezuela is $80, and as there is already excess supply in the world market, ultimately prices are expected to stay much lower in the near future.
That said, geopolitics is likely to be an enduring theme with Iran’s Islamic regime on President Trump’s radar, with current anti-government protests possibly giving the US grounds to intervene. Other neighbouring countries like Mexico and Columbia are also getting White House heat, with Greenland interest shaking European capitals. It all means safe haven assets should be underpinned with support, with gold’s push higher on Friday looking good to challenge the record high at $4,550 and fresh peaks.
The fourth quarter and full year earnings season kicks off this week with the major US banks leading the way. Consensus expects mild gains over the same quarter a year ago, but it’s very likely they will beat as analyst estimates are now always too conservative. Bank results give us a wider barometer on consumer spending habits and trends, while their views on the credit cycle amid a slowing labour market will be watched. The overall earnings season should also be monitored for profit margins, as they’ve been holding up well even though tariffs were supposed to impact.