Markets Wrap: Gold, Bonds and Bitcoin Struggle as War Uncertainty Clouds Investor Outlook

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Welcome to the men and talks money market wrap where we talk about the biggest moves

in markets this week and what's driving them.

I'm joined steveic author of the award winning money to steal newsletters stepping in for

meron this week. And back again, joining me in the studio is Marcus Ashworth,

Bloomberg opinion columnist and all round markets expert.

Hello Marcus.

Hello John.

Thank you very much for joining us again.

Yes, it's excellent to have you here because

because nobody really seems to know what's going on.

Yeah, it's quite difficult to get asked, you know what's going to go on and what where should you

put your money away? Shouldn't you put your money? And the answer is, well,

the dollar is done okay.

It's still really not that well as a haven in that sense.

Gold we can clearly see and Bitcoin has become sort of specklessly joined at the hip.

And that's had quite a quite a big correction goal.

But at least it did bounce off the turn of day moving average of 410.

So 4,000 and even.

And that shows that I think that there's a lot of the speculative stuff is mostly out now.

That is interesting because the I suppose and people have a little bit of skepticism

or the kind of skepticism about charting.

But the truth is if there is a if you're talking about short-term moves and

be if you're talking about an asset that has no obvious fundamental price in,

you can't price something that doesn't generate a cash flow easily.

So technical analysis actually is pretty useful when it comes to stuff like gold and Bitcoin specifically.

Yeah, I mean, indeed some of these markets, like a lot of FX markets,

I'll, you know, a lot of everyone trades technicals on and so you don't.

And I think gold isn't it.

It's really important to factor to it.

So I think this puts gold into a different paradigm in the census now.

Perhaps a bit more normal.

I wrote a piece basically saying that some central banks have been buying.

They look to cash out, pick, you know,

read the piggy bank and their hour of need as we clearly can see both if their energy

resource poor or indeed requiring a lot more bangy things because the little military need.

So I think it's going to be quite an interesting time where, you know, certain

Asian and Middle Eastern countries may may decide just to trim a little bit of that

or what's been a fabulous returning asset in gold.

And that will help smooth the sort of pain on there on their on their poplars.

But equally some still believe in gold.

Still want to move away from the dollar for whatever reason.

You know, the gold has attraction.

So as that sense, I don't think, you know, gold is going to collapse like that.

I just think it's going to do a bit of chop some wood and there's good reasons to buy

and good reasons to sell it and that makes it a little bit more

possibly a little bit more predictive than it has been in the last year or two.

I think that's really interesting.

Obviously, I mean, the point of central banks buying reserve assets

is to an extent to have something they can rely on and emergencies.

And so we've had an emergency.

So anyone who's selling gold at the moment from a central bank,

I mean, they're basically showing that it's what is done what it was meant to do.

Yeah.

And I think that all the talk of interest rate hikes

among major central banks, well, one, I think it's madness

because, you know, an external supply shock.

There's a very little you can do to control it.

And more importantly, you know, with labor markets,

weakening and general overall economic soginess,

the actual price mechanism isn't going to be quite so.

Bad this time, likely not to be quite so bad.

In the sense that the second round affects some wage demands

and all the things that followed clearly in 2022

is unlike to be anywhere near and strong.

However, clearly central banks aren't taking any risks on that.

And there's a lot of talk at the moment.

I hope that will calm down a bit.

But clearly, bond markets and fixed income have not been anything like

a haven you would expect because they're seeing straight through into inflation

and potential changes of certainly no more rate cuts

and potentially a rate hikes.

That will work its way out.

I hope.

But, you know, we've got to really have a clearer end to the war

for that to have any form of level of confidence.

At some point, if bond yields keep on rising

and if this makes me feel a little bit sick,

this will move credit spreads wider

and it will move equity markets down.

But we are holding on, everyone's hoping

that they don't want to miss out on the relief rally

when any of it ever properly comes up.

Well, there is that, isn't there?

There's that element.

The Trump put still works,

but it doesn't want the same way

that the green span of the central bank put used to.

It's like with central banks.

It was like, well, they'll actually print money

and do something that props the market up.

But at some point, Trump's social media output

has to lose its potency.

Yeah, I think we've seen it maybe it's sort of six and a half thousand

on the S&P, a hundred dollars on certainly

West Texas into the crude.

And maybe 5% or 30 a year or four and a half

what do you want to call it on more on the 10 year

is where clearly he doesn't find it very comfortable.

And that's when you get something

more dovish comments coming from him.

But I mean, there's no point trying to guess

whether war is going to go or it's going to stop

and I think that's where it's quite tricky to choose markets.

I do see plenty of talk about, you know, even SpaceX IPOs

and you know, the electronic arts, you know,

LBO deal going through clearly in the US

primary bond markets are open.

Less so in Europe, but there's still a deal

came through a few today, six, I think,

mostly from Coca-Cola.

But you know, the point is is that the markets already

want to go back to action.

Perhaps that's front running a little bit too aggressively

what really will happen with this war.

But no one's really willing to cash in and bail out

out of all equities, they expect them to bounce back hard

when it does end.

So it's a bit of a strange market.

As I said, bond markets are training very poorly.

Currencies are, you know, again, the dollar is a bit stronger

but not that much.

Yes, obviously.

And gold, if you know, it hasn't worked very well

and nor is Bitcoin or anything like that.

So there's no logical base to hide.

Other than dollar cash marks.

Bitcoin has actually gone up since the war started

but only because it failed so hard before.

So yeah, it's kind of splitting hairs.

But yeah, I think the Bitcoin people would say,

oh, wait a minute, Louis, stop, seven, six percent.

But one thing I was going to ask about the fiscal side.

So going back to bond yields, how much of the concern

is not so much or not just about the fear

that central banks will actually raise interest rates.

And instead of, well, what happens

when other governments start to try and bail out people

for, you know, the energy bills,

how much is that going to drive up?

Borrowing costs like in Britain, for example, you know,

get an energy bail out when Rachel Reeves

is already looking at her fiscal headroom

cannot like vanish and down the pine.

Yeah, I mean, she's just, I mean, we calculated about,

you know, three to five billion extra

of prices persist this high.

That's not really going to change the dial.

They're clearly not talking about any packages

anyone like the Liz Truss dial bail out,

which of course, that was the real mover and checker

that the unfunded taxes was a minor,

a very minor thing compared to the huge energy.

Yeah, which ended up only being a quarter of what it could have been,

but that's the real driver then.

So there's nothing like that now, yet anyway.

And clearly, the government isn't ready to sort of start

hoping not to y'all or anything like that.

So it's, for the moment, I think currently in the UK,

there is a window because the way the off-gem price cat works

out to June July, July that affects the next time,

which will be higher, but it, you know, clearly, but I mean,

it's just not necessary.

I've got a few months of hoping and praying that this wall

goes away.

But nonetheless, growth in the UK is set to head to all zero again,

which is just staggering.

So that's what I personally don't think the banking

will be able to really bring themselves to hike rates.

But, you know, the market,

guilt yields up close to 5%.

You know, this is doing all the hard work for them anyway.

You know, it's pricing mortgage deals have,

have gone through, you know, the roof and likewise,

you know, corporate loans and things like that,

which are priced off-gilts.

You know, it is already, the pinch is already happening.

So what hopes that will be doing a lot of the heavy lifting

for the bank of England, they won't feel they need to do much more.

Because the economy will be more loved anyway.

Well, I think we're looking at it now.

They were predicting less than 1% growth this year anyway,

which was a bit on the low side.

The ABR had been much more optimistic.

They trimmed it back, but just over one,

1.2, something like that.

But I think now we're lucky we get half a percent at this rate.

So where am I the first quarter?

The last two or three years has been the big quarter.

And the rest of the year has been pretty much flat.

And it's a real kick in the teeth to get,

you know, the first quarter is going to go be flat,

probably at best on a very, very small lap.

So that's going to kick them momentum out of the economy,

stop it dead.

And I think that's, you know, a worry,

because if we were to get rate hikes in the UK,

and likewise in Europe, again, I don't see it happening for them,

but bear in mind their rates are 2%

where at 3-2 quarters, they're going to be double.

Though we do have sticker inflation,

it's where they are.

We index everything and up it ratchets

and when people demand highway rises,

it's very hard to get out of the system in the UK.

But it was looking like it was going to start coming out.

But I think if they do have to cut high rates,

maybe one just to, you know, preemptively,

I suspect it went last very long,

and I see the bank having to turn around

to cutting rates again.

Possibly quite sharply if the economy really does collapse.

I don't think this is going to happen,

but, you know, we're going to have to be aware

that all bets are off now,

and we have to look at things, you know.

Much more philosophical way.

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We touched on the housing market there.

I prefer the mortgage rates.

But it did catch my A yesterday.

A low, you know, I've been aware of this for a while,

but like London,

places from the ONS,

the official house price index.

Which I don't pay that much attention to,

because it's very late in arriving.

But they've gone down for about six months in a row now,

and it was down something like 1.7%.

Or something like a year or a year, it was quite a,

the significant draw.

I mean, clearly, if mortgage rates go up,

that's going to get worse this year, presumably.

Well, there was sign of it turning around.

Yeah, it's falling so hard, and so far.

And I just think that's kick the momentum out of it again.

And yeah, that knock on the effect of like

the marginal buyer, you know,

buying on an 80 or 90 percent loan to value is going to be put off.

It won't alter the bulk of transactions these days,

which are 60 percent or indeed in cash.

But again, people will be more cautious,

and not the knock on effect further,

the whole rest of the economy won't be great.

But it's going to take a while to filter through that,

and I think that, you know,

London probably will probably go to my mind,

probably almost nowhere in that sense.

I don't think it's going to collapse much further.

I think we've seen, you know,

towards the bottom.

But as I said, that momentum,

when you're starting to look like a concern around is,

I mean, it happened no more.

And just a sort of final question,

which really is a take your pect,

take your guess.

I mean, how much longer do you think this goes on for

before we actually start to see something very unpleasant?

Because I mean, there are signs that countries

elsewhere, like in Asia,

I mean, there haven't any start rationing fuel supplies in some place,

which...

Yeah, as we know, it's not just the

the visible stuff, it's the stuff that comes off it, you know,

fertilises, napfer for plastic bags,

apparently there's a huge Russian South

career for plastic bags.

You know, it's all the other products, which, you know,

heavier stuff, you know,

diesels and bitumen,

all these sorts of things, which, you know,

are products from hydrocarbons,

are what really makes the world go around.

And I think, I mean,

Deutsche Bank did a quite an interesting survey

when everyone thought the war would come to an end.

And I think most people view it as the early part,

early to mid-part of April, you know,

that that's really where everyone's tolerance and patience

will put pressure on Trump to say enough already.

And that made me well be earlier than that,

but I think, you know, we know the deadline

at the end of Friday is normally where,

obviously, if there weren't too further,

pick up, pick up on hostilities,

that'll happen over this weekend.

If it carries on after that for much longer,

I think it will become increasingly less,

less effective, increasingly less and less,

easy for the US administration in Israel to carry on.

So I thought they'd get on with it very quickly

and accelerate it right now,

and see if they can break the Iranians,

or indeed there will be some success.

And so I don't think many people see it

extending out into late April,

but, you know, these things like a lobster pot,

crazy to wander your way into these things,

and very, very difficult to turn around and get back out.

So, you know, but I mean,

I sense what I'm talking about is a cessation

in some form of cease-fire, some form of partial opening

of the straights form is I don't think the,

you know, this will drag off for a long while,

but in the sense that the worst bit of it

may be able to fairly soon, more would hope.

Well, thank us, Khrust.

And thank you very much again, Marcus.

I think we should.

Yeah, I wish I could be clear on this stuff,

but it is clear as modern.

It's very difficult to navigate one's way through this

without, you know, keep it tight,

keep it close to home,

and try not to, obviously, panic,

and I have anything, but, you know,

liquidity, if you have it, is clearly where

the sensible thing to be.

But there does seem to be quite a lot of movement

into cash and reduction of equity positioning,

and outright market sort of positions

has definitely had a huge shakeout,

so a lot of leverages come out of the system.

And that's, you know, that'll calm things down

once we get something.

Yeah, I mean, that's not unhealthy.

Yes, probably exactly.

I don't think the markets are in bad shape,

structurally, but, you know,

there is still quite a lot of hope and expectations.

I, as I said, they know that this will be over

and down in a few weeks,

and we can get back to, you know, rallying like whatever,

but it does drag on.

There's going to be some more pain,

but let's hope that has in the case.

No more pain in it.

Very well, thanks for listening to this week's

Melon Talks Money debrief.

If you like the show, rate, review, and subscribe,

whatever you listen to podcasts,

and also be sure to follow me and Marcus on X slash Twitter.

I'm at Join Underscore Step-Eck,

and Marcus is at Marcus Ashworth All-Winworths.

But the episode was produced by Moses Andem,

and Somersade, and special thanks to Marcus Ashworth, as always.

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