Zero Equilibrium January Financial Markets Review

- By Chinedu Okoye 

Overview:

Following our Q1 2025 Outlook, we take stock of assets classes we are exposed to and/or have a keen interest in.

So far in January, Equities has seen a mixed outlook with Developed market indexes (US, Europe and Japan) performing strongly whilst Emerging market indexes saw a month-on-month decline at Friday's close.

Commodities led by Silver also recorded monthly gains, and the US Dollar declined against all BRICS Currencies.

Cryptocurrencies in our watchlist largely performed positively, with the exception of Bitcoin Cash (BCH) down 4%.

Fixed Income still presents a price appreciation upside for US and European Sovereigns, though EM Soverigns offer much higher risk reward balance as stated in our 2025 Outlook. 

 

1.0 Equities:

US and European Major Indexes have all had positive growth in the month with the DAX surprisingly the top performer. Emerging market proxies however have all recorded loses save for South Korea KOSPI.

1.1 US and Europe:

• US Major Indexes:
• DJIA: higher mom w-o-w representing a rotation into non tech (consumer stoles discretionary, etc), and investor confidence in the broader US economy, assured of a rate adjustment or favorable monetary policy environment.

 

• S&P 500: Traded sideways in the week rocked by the tech selloff, however it stays positive at 2%+ month-on-month gain.

• NASDAQ: Though rocked perhaps the most bu the DeepSeek craze, the index stayed fairly stable month-on-month adding just above a percentage point. 

• European Major Indexes: Eurozone and British Equities outperformed US Indexes on a month-on-month basis, by a large margin. Which can be attributed to expectations of easing and a relatively cheaper Euro—for the most part of the year, offering discounted effective prices on Euro denominated stocks.
• DAX: Up in the week and the most in the month amongst its peers, as the ECB injected stimuli into the economy. And Eurozone unemployment and inflation data came in little changed.

• CAC: The third highest index at +7.71, in line with its European peers, in strenght and relative stability 

• FTSE 100: Up 6% in the month. 

• EUROStoxx 50 which tracks the largest and most liquid companies in leading sectors in the Eurozone economies, is up 8% from Friday's close in a Month-on-month basis. 

 

1.2 Emerging Market Indexes:

The Shanghai, Shenzhen, Nifty, and Hang Seng Index all took hits, month-on-month at the close of Friday with the anomaly being the South Korean Exchange (KOSPI).

This was anticipated as we had earlier stated in our Financial Markets and Macroecoomic Outlook , on the bearish expectations of emerging markets, with an emphasis on China. 

South Korean Performance:

With the infusion of large-cap Asian stocks such as Samsung, SK Hynix, Hyundai, and LG Chem, the Korea Composite Stock Price Index (KOSPI) is heavily weighted toward technology, automotive, and semiconductor industries.

This sectoral composition has helped the index remain relatively insulated compared to other emerging market indices, sustaining its performance amid broader market volatility.

The KOSPI, Hang Seng and Nifty seem the safest place to be with regards EM Equities. China's Shanghai and Shenzhen Index remain marred by underlying economic risks in the local economy, from property market crisis to weak industrial profits, to low consumer confidence. 

2.0 Commodities (Crude, Gold, Silver):

Commodities in our watchlist has a mixed performance on the week, but recording monthly gains all round, with precious metals (gold and silver), hitting new highs and Oil retracing from monthly highs only in the past two weeks.

• Gold: Spot and futures prices rise on rate cuts and uncertainty in the markets about the economic effects of tariffs. Gold is up 6.7% to $2,801.00, from $2,625.12 a month ago. Gold spot —the second best performing commodity on our watchlist—prices are also up +7.41% to $2,835.00 from 2,639.42 in early January.

• Silver: From the chart below silver has had the best month amongst the commodity group. Rising 9% m-o-m to $32.265, as it continues to ride the long awaited bull run alongside Gold. Silver could outperform gold at this rate seen as the Gold "silver-price" is at historically abnormal highs.
• Price Targets: for XAUUSD (Gold futures), we anticipate a H1 price target if $3,300 and a full year price target of $3,600. For Silver we hold a $35-$40 price target between Q1 ending and Q4.

• Crude Oil: Crude declined for a second week straight, as predicted but more so than anticipated at last weeks close owing to a combination of macroeconomic factors and take-profits, rather than shorts. 
• Crude settled below the $73.50 (WTI) and $76 (BRENT) tentative support level calls, to end the week at $72.53 (WTI) and $75.57 (BRENT). This is after hitting highs of $78.96 and $81.20 for WTI and BRENT respectively in the previous week.

(Crude Oil 25/10/24 - 31/01/25)

 

2.1 Macro Review:

1. Supply continues to dictate prices as crude might be approaching a new range with higher support levels.
2. Demand declines however are will probably keep a lid on prices for BRENT and WTI above $79 and $74.50 respectively.
3. Uncertainty hedge, coupled with systemic rate cuts by major Central Banks is bullish for gold and Silver, 

2.2 Remarks: Weekly Expectations

Crude's retracement was anticipated, and closed below levels we suggested, because the spread has now crossed the $3 mark, we expect a retracement upwards back above the above prescribed levels , going into next week, led by BRENT.

However a range bound trade in either direction, snt ruled out, but a move downward is expected to be minimal, as will be the case of an upward reversion.

3.0 Crypto:

Crypto Assets in our portfolio consist of; Bitcoin, Bitcoin Cash, and XRP. This is balanced out by our holdings of gold-backed cryptos which essentially mirror Gold. Having taking taken a 60% hit on DGX, and closed out our position, the Gold portion of our Crypto asset portfolio now consists of just XAUT and PAXG.

 

 

Ripple (XRP) has seen a methoric 28.61% increase in the past month, making it the best performing Crypto Asset and indeed all asseet in our crypto portfolio and watchlist, even though it has a relatively low weighting.

Bitcoin Cash (BCH), dipped -4+% m-o-m, but this is balanced out by the rise in the other holdings; BTC, PAXG, XAUT with relatively higher weightings. 

PAXG & XAUT, both of which have mirrored Gold consistently and acts as a hedge and value holdings, as it indirectly increases our exposure to the yellow metal by proxy, seem as it's prices mirror Gold.

Price expectations for each of the above Crypto assets are as follows;

BTC: $120,000

BCH: $585

XRP: $4.985

PAXG: $3,560

XAUT: $3,590

4.0 Currency Markets:

We look at the USD performance on the index (v major peers) and individually against its top five major pairs and the five "core" BRICS Currencies.

 

4.1 USD v Majors:

The US Dollar has gained m-o-m against three of its five major peers. This is as central banks in these economies are operating on a far more accommodative monetary policy framework than the US Federal Reserve, save for Japan.

USDJPY: The USD lost the most against the Japanesn Yen as the Bank of Japan stays committed to raising benchmark rates, which currently stands at 0.50%, after the 25bps hike on October 24th, with plans of continuing the cause except indicators like wage gains, employment and economic growth suggest otherwise.

EURUSD: The Eurozone economy still grapples with economic growth, even though inflation and unemployment data are somewhat cooling. However the Euro having almost gone to parity, in January 13th has since paired back loses as the US Dollar gave up gains in the weeks afterwards.

This was expected given the appeal of Bunds and European stocks on a cheaper Euro. The 1.05 monthly high it reached in Monday —a two week climb, was given up as the Federal Reserve held rates at 4.25-4.50% after the ECB cut 25bps.

GBPUSD & USDCHF: The USD gained the most against GBP, which was seconded by Swiss Franc (CHF), and gained marginally against the Aussie Dollar.

AUDUSD: The Euro and Aussie Dollar ar reflects to stay stable going into the remainder of the quarter in relation to GBP, and JPY.

Swiss Franc CHF, is to us an indicator pair that gauges market sentiment. And the strength of the Greenback against the Franc suggests sustained market confidence, albeit with a hint of caution. The pair is to us what the VIX  is to the stock market.

 

4.2 USD v BRICS:

The Dollar is down against all BRICS Currencies save for the Indian Rupee (USDINR), on a month-on-month basis. This we attribute to a combination of commodity price increases (particularly Oil), and the De-dollarization of intra-BRICS trade.

Economic weakness, such as the industrial slowdown in China, and consumer demand weakness also contribute to the stronger than expected BRICS currency performance, as a cheaper Yuan has historically skewed trade balances in favor of China. Lesser demand for commodities due to an industrial slowdown also is positive for the Remninbi in the same sense.

We expect, the currencies to be volatile throughout the year, without ruling out the possibilities of a mean retracement that indices stability.

 

4.3 Dollar Index (DXY):

The Dollar Index has, trades sideways in the month, closing at 108.220 on Friday October 31st to end the month on a -0.09% decline. This is hardly surprising going by the mixed performance of the Greenback against major currency pairs month-on-month.

(Dollar Index: January m-o-m moves)

5.0 Fixed Income:

5.1 DM Sovereigns:

US 2 year and 10 year yields decline m-o-m to 4.295% and 4.542% respectively but still offers higher yields than their European counterparts. UK 10yr yields are also at similar levels to US Ten year notes at 4.5340%.

Germany, France and Italy monthly rise in yields despite the rate cuts suggest stock market appeal over Bunds, but rate cuts offer price upsides for bond traders, and could serve as a hedge in the case of an economic downturn.

5.2 Emerging Market Sovereigns:

The SPDR Bloomberg Emerging ETF tracking EM Soverigns is up 0.96% month-on-month, this is buoyed by stronger EM currencies (using BRICS Currencies as a proxy measure), falling European interest rates and Japan's anomal tightening. In contrast to Europe.

(SPDR@ Bloomberg EM ETF)

EM Stock indexes in section 1.2 above saw a decline in the month, which might suggest a market rotation into Bonds from stocks in the Emerging market segment. As earlier stated EM Soverigns provide the best risk-reward balance.

6.0 Overall Remarks and Conclusions:

Equities are as stable and strong as anticipated, but risks remain, especially in the EM space from tariffs and other Macroeconomic risks.

Commodities above still have room to go in the quarter, as precious metals are expected to stay strong for the remainder of the year.

Crypto volatility is assured, with resistance expected at the above price targets.

Holding Treasuries and EM balances out fixed income risks, with the former offering price appreciation and EM offering relatively higher yields accompanied by exchange rate risks.

DISCLAIMER: THE ABOVE DOESN'T CONSTITUTE INVESTMENT ADVICE, BUT A RESEARCH INTO THE DEVELOPMENTS IN THE FINANCIAL MARKETS AND AIMED ONLY AT OFFERING INSIGHTS. WE RE LONG GOLD, OIL, PAXG, XAUT, BTC, SPDR BLOOMBERG EM BOND ETF.