FTSE 100 hovers near record while Trump’s White House arrival pushes up Bitcoin and gold
Susannah Streeter, head of money and markets, Hargreaves Lansdown: ‘’The FTSE 100 has opened the week buoyed by positive winds and renewed investor enthusiasm. It is close to clinching a fresh intraday record. After reaching an all-time high on Friday there seems little to spark a pull-back, with US markets shut for Martin Luther King Day. However, all eyes will be on Donald Trump’s inauguration later as the 47th President of the United States and his comments are likely to hold sway on markets. In particular, there will be intense interest in any clues as to just how punishing tariffs could be during his term, and the knock-on effect for inflation and global trade. The pound has gained a little ground against the dollar, but it’s still bumping around at $1.22, close to 15 month lows partly due to the enduring strength of the dollar. There’s respite for the UK government in terms of its borrowing costs. With bets high that the Bank of England will plump for a rate cut in February, 10-year gilt yields have eased off to 4.6% – down from 4.9% less than a week ago. With the UK no longer in the eye of the storm when it comes to market turmoil, it’s helping improve investor sentiment.
Gold has gained ground amid the uncertainty about the outlook for the world economy with Donald Trump returning to the White House. It’s currently trading above $2700 per ounce, off its October highs but is gaining back some ground. Gold is shining as a ‘safe haven’ asset, with investors seeking shelter to weather the storm of unpredictability. There are concerns that widespread tariffs will push up US consumer prices, increase inflation, and lead to interest rates staying higher for longer. There are also risks that a strengthening dollar will lead to inflation being exported to other countries which import dollar denominated commodities. There is a possibility, however that global companies will lower prices to stay competitive in the US market, which could have a deflationary effect on some economies over the longer term.
World leaders will be waiting on tenterhooks to find out whether rhetoric on the campaign trail will become reality once Donald Trump is back in the Oval Office. There will be plenty of tricky diplomatic tightropes being walked. UK Prime Minister Keir Starmer is thought to be eyeing up an early trade deal with the US, but he’s likely to be lining up in a long queue. There are concerns that industries such as pharma, mining, fishing and the drinks industry could be affected. The impact of Trump’s tariffs may be more minimal overall for the UK, given the majority of trade with the US is in services which are likely to be exempt from the bulk of planned new duties. However, finance, consulting, logistics or insurance firms for example could still be affected if they support the trade of goods around the world. The International Monetary Fund has warned about the risks to supply chains and global trade, with Canada, Mexico and China bracing for the worst initial effects.
With the writing on the wall so overwhelmingly pro-crypto as Trump returns to the White House, Bitcoin has surged again in value to a fresh record high. It jumped almost 7% to trade above $108,000. The crypto markets have been riding the FOMO waves, with speculators fearful of missing out on the euphoria sparked for coins and tokens, With both the President and the First Lady launching meme coins just before the inauguration, it’s being taken as a sign that Trump’s pledge to make the US the Bitcoin capital of the world will be honoured. Policy is expected to be outlined to make Bitcoin a strategic US asset and build up a reserve in the cryptocurrency. Detail is also expected about plans to increase US dominance in Bitcoin mining and gain greater access to the blockspace to increase transaction capacity for US individuals and companies. There are expectations that crypto will be brought more into the financial mainstream, with clearer rules about how individuals and firms can trade such assets. All these are high hopes, which just a few years ago looked ‘pie in the sky’ but now appear much closer to reality, given how Trump has turned such a cheerleader for crypto. Its creeping influence in the world of finance can’t be ignored. Nevertheless, investors should be mindful of getting carried away in a wave of speculation, with money they can’t afford to lose. Although institutional interest and expected changes in regulation are adding more legitimacy, it’s still a highly volatile asset and has a history of dropping sharply after steep climbs.
Brent Crude has dipped back to trade near $80 dollars a barrel, as Middle East tensions ease off thanks to the ceasefire in Gaza. Rumours are also swirling that the tougher sanctions regime imposed on the Russian oil industry could be short-lived. A clampdown on ‘shadow tankers’ in the last days of the Biden administration led to renewed concerns about supply, given the it was set to curtail oil flows to Russia’s customers, increasing demand on other producers. There is expectation that Trump may try and use the carrot of a lifting of some of the curbs on Russian oil trade in return for a truce in Ukraine.’’
