Market snapshot: unable to buck the downward trend

US dollar weakness continued to be a central theme, with comments from the President suggesting that he is comfortable with a weaker greenback.

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As the Swiss franc hit a 10-year high against the dollar and as the euro climbed to over €1.20 for the first time since 2021, the possibility of yen intervention piled on renewed dollar selling, alongside the current concerns of geopolitics, a potential government shutdown and enduring round of trade wars.

Not that it needed any encouragement, the gold price soared to new record levels given its inverse relationship to the dollar. Now apparently on the way to $5,300 per ounce, the precious metal has doubled since the beginning of last year. Some investors have also pointed out some evidence of national pension funds hedging their dollar exposure while maintaining their holdings in underlying US securities. This partially explains why markets have continued to prosper despite the currency weakness, and indeed the S&P500 hit yet another record closing high yesterday.

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For US investors, introspection is likely to be the watchword today as three of the “Magnificent Seven” report in the form of Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc Class A (NASDAQ:META) and Tesla Inc (NASDAQ:TSLA), while the Federal Reserve announces its latest interest rate decision. For the latter, where a no-change decision has long been the consensus, there will be more than a passing interest in the Fed Chair’s response to the inevitable questions around the apparently threatened independence of the central bank.

Meanwhile, the AI trade will come under increased scrutiny on a number of fronts. Quite apart from the expected strength of the numbers, the themes of capital spending and early monetary returns will be high on the agenda. The punchy valuations which have accompanied the AI euphoria will at some stage need to repay investors’ faith by displaying a strong and profitable trajectory of growth. As such, the margin for error or indeed disappointment is fine.

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For the moment the main indices remain ahead in the first few weeks of trading this year. The Dow Jones has posted a gain of 2% and the Nasdaq 2.5%, while the 2% rise for the S&P500 resulted in a new record high for the benchmark index.

The FTSE100 was broadly neutral at the open, with an even split of winners and losers preventing progress. Names with a larger proportion of US earnings such as GSK (LSE:GSK) and to a lesser extent Burberry Group (LSE:BRBY) faltered, with the latter also reacting to a read across from some disappointing earnings from French luxury group Lvmh Moet Hennessy Louis Vuitton SE (EURONEXT:MC).

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More positively, the miners continued their stellar run on the back of further precious metal appreciation, with Endeavour Mining (LSE:EDV) adding more than 3% and Fresnillo (LSE:FRES) around 1.5%, despite reporting a decline in gold and silver production last year alongside similar outlook comments for the year ahead. Any cautious comments have done nothing to arrest the stock’s spectacular ascent however, with a share price rise of 550% over the last year proof of the heightened levels of investor demand. 

The muted positive open added to what has been a promising start to the year for the FTSE100, where a 2.9% gain has left the premier index in sight once more of its own record level.