3 markets to watch in uncertain times
This week has been all about uncertainty. As we have mentioned in previous notes, there is a deficit of confidence in financial markets right now, which is the reason that risk assets are struggling. However, there are always opportunities in financial markets.
Below, we give you the top 3 markets for the days ahead.
1, Gold:
Long gold and short oil seems to be the new Trump trade. Gold broke above $3,000 an ounce this week, although it has run into some resistance around $3,050. We think that the gold price will continue to enjoy life above $3,000 for a few reasons including world gold demand hit a record high last year. Central banks continue to accumulate gold, and we think that this trend will continue due to elevated levels of geopolitical and economic instability, we also believe that a weak dollar is supportive of demand for gold in the long term. The ETF market is also seeing increased demand for gold, according to the World Gold Council, and there were two consecutive quarters for inflows into gold ETFs in Q3 and Q4 2024. Supply also reached a record last year, but this has been met with voracious demand for the precious metal from a variety of sources.
As we move into the last full trading week of Q1, we will be watching to see if the gold price can break above $3050 per ton. Although the gold price is stalling on Friday, we think that $3,000 should act as strong support, and any weakness could be used as a buying opportunity that triggers another leg higher.
2, FTSE 100
US stocks continue to underperform, and the prospect of a prolonged recovery rally for US stocks post the FOMC meeting on Wednesday have been dashed. Stocks are extending losses on Friday, which suggests that a sustainable recovery rally in the US could remain elusive for now.
Investors still want to put their money to work, so they are looking elsewhere. European and Chinese stocks have been attracting the most interest so far in 2025, but we think that the FTSE 100 is also worth a look.
The sharp selloff in the Magnificent 7 in the US suggests that the market is shifting its attention away from companies that produce intangibles (tech and AI) to companies that produce tangible goods that drive revenues. The FTSE 100 is teeming with these companies. The FTSE 100 may not be the most glamourous of indices, but it does have some attributes that can perform well in an uncertain environment.
The dividend yield for 2025 is 3.73%, and for 2026 analysts expect it to grow to 4%. This is still a decent yield even though there have been some key FTSE 100 companies who have cut their dividends, including BP.
The FTSE 100 is also looking cheap. The price to book value of the FTSE 100 is 1.95, which is very low considering the UK has some of Europe’s biggest energy and defense companies. In contrast, the S&P 500’s dividend yield is less than half of the FTSE 100’s at 1.36%, it is expected to grow slightly to 1.53% in 2026, yet its price to book value is higher than the FTSE 100’s at nearly 5 times. This means that the S&P 500 is more expensive and does not offer much value-add to investors, since it is sitting on a YTD loss, and the dividend yield is meagre. This could be the FTSE 100’s time to shine, after underperforming other European indices so far this year.
Chart 1: FTSE dividend yield vs S&P 500 dividend yield 1-year.
Source: XTB and Bloomberg
3, EUR/USD
The single currency had a bruising week. After rallying mostly in a straight line in March, the single currency’s strong run came to an end earlier this week, as the dollar started to push higher. There was a fundamental rational for this, the FOMC upgraded their inflation expectations and shifted to a slightly more hawkish Dot Plot, which could see only 1 rate cut from the Fed this year, which is supportive of dollar strength.
The Fed meeting had a big impact on the G10 FX space and EUR/USD is lower by 0.88% so far this week. $1.10 looks like a step too far in this environment, however, if we get another leg lower in EUR/USD next week down towards the 200-day sma at $1.0726, then we could see some buying interest.
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