European stocks make fresh record highs, as gold and silver stage a comeback and tech leads the way

The main news this morning is the big recovery in precious metals. Gold is higher by more than 5% so far today, while the silver price is up by 10%. Precious metals are clawing back some of their recent losses, as the market stabilizes. Silver has now erased Monday’s loss, and gold is at session  highs and is extending gains as we move through Tuesday morning.

Can gold and silver continue their recovery?

After a 5-standard deviation move on Friday, it is no surprise that gold and silver are stabilizing. Whether or not silver can continue to recover and rise back above the $90 per ounce level, it is currently trading at $87, could depend on retail demand and ETF demand. ETF flows into silver shrank in January, and silver-backed ETF holdings were reduced by 168 tons on Monday. There are other sources of demand for silver, for example industrials like solar panel makers, but it will be worth watching to see what silver ETF flows do next, and whether dip buyers can sustain an extension of today’s rally.

Eurostoxx 50 reaches fresh record, led higher by ASML

The dollar is the weakest currency in the G10 FX space on Tuesday, and this is helping to fuel the recovery in precious metals and is providing a boost to overall risk sentiment. Stocks are higher across the board this morning, and the Eurostoxx 50 index has reached a fresh record high. Today’s rally is led by Europe’s tech sector, which is higher by 1.6%, led by ASML.

Musk’s Space/ AI hybrid boosts hope for mega IPO

Improved sentiment towards the global tech sector is driving the recovery in risk assets today. News that SpaceX and xAI are merging to create an AI/ space exploration megalith with a valuation of $1.25 trillion, has boosted overall sentiment as an IPO is expected at some point this year. At a $1.25 trillion valuation, Musk’s new company would have a valuation higher than Eli Lily and more than three times the value of Palantir.

Palantir boosts AI trade

Palantir’s share price jumped 5% in post-market trading on Monday night, as investors greeted their results with enthusiasm. This is helping to boost the outlook for US stocks today, and futures are currently expecting a 0.6% increase for the Nasdaq later today.

Palantir is one of a number of tech companies releasing earnings this week. Amazon, Google and AMD also report results. This will be a key test of the AI trade, as demand for chip makers and cloud computing will be reassessed by the market. Any signs that 1, the future outlook is uncertain, or 2, capex spend is not justified by strong forecasts for future sales, could be punished by the market. Palantir passed this test, and its share price could start to recover after dropping more than 18% so far this year.

FTSE 100 lags its European peers

The FTSE 100 is higher by 0.2%, but is lagging its European peers, even though the materials sector is bouncing back and is higher by more than 2.5%, led by a 5.5% gain for Endeavour mining, and a 4.7% gain for Fresnillo. The lack of tech in the UK index is hindering its progress this morning.

NFP delay due to US government shutdown

US economic data releases are delayed this week, and there will be no NFPs due to the government shutdown. This should be rescheduled for some time in the next few weeks, as House Republicans are expected to vote to pass a temporary budget later today. However, this has not stopped disruption to US economic data releases.

Why Warsh and a delay to NFPs could boost risk sentiment this week

For now, this is risk positive. Last week, precious metals sold off sharply after the announcement of Kevin Warsh as President Trump’s nomination to be the next Fed chair. His hawkish credentials eased fears about Fed independence and inflation spiraling out of control in the US. One of the key events this week was going to be Warsh’s assessment of the January labour market report, and whether this would give us a clue about whether he is still a hawk, or if he has turned towards the dovish side in recent years. However, the delay to the NFP report means that we will have to wait to hear more about Warsh’s assessment of the US economy and his thoughts on monetary policy.

Ahead today, AMD’s results will be watched closely, especially as tech makes a comeback.

Chart 1: Silver and gold make a comeback

Source: XTB and Bloomberg