Markets Shrug Off Metals Rout, Focus on Strong Data and Trade Deals
By Jamie McGeever
ORLANDO, Florida, Feb 2 (Reuters) - Global markets displayed a split personality on Monday, with Wall Street climbing to new highs and the dollar firming even as precious metals extended their historic plunge. The divergence underscores a pivot in investor focus: solid manufacturing data and diplomatic developments are currently trumping traditional safe-haven assets.
The catalyst for Friday's metals collapse—the potential nomination of a hawkish Federal Reserve chair—remains a topic of heated debate. However, the broader narrative driving Monday's session was one of economic resilience. Strong U.S. and global factory activity reports, coupled with a significant U.S.-India trade agreement, fueled risk appetite, leaving gold and silver in a downward spiral.
Market Snapshot: A Tale of Two Trades
Equities & FX: U.S. stocks closed higher, with European benchmarks hitting record levels. The dollar index rose 0.7%, particularly gaining against commodity and safe-haven currencies. In contrast, major Asian markets sold off.
Commodities: The precious metals rout deepened. Gold fell 4%, adding to Friday's steep losses, while silver dropped another 7%. Oil prices also fell sharply, down 4.5%.
Fixed Income: U.S. Treasury yields rose across the curve, with the 2s/10s spread briefly hitting its widest since last April, reflecting growing growth expectations.
Key Drivers: Data Over Defensive Assets
1. Manufacturing Momentum: The U.S. ISM Manufacturing PMI surprised to the upside, jumping to 52.6 in January and marking the strongest growth in nearly four years. This strength challenges prevailing recession fears and complicates the Fed's rate-cut timeline, especially with inflation still elevated.
2. Trade Pact Progress: The U.S. and India announced a trade deal that will reduce tariffs and commit India to significant purchases of U.S. energy and agricultural products. Coming on the heels of an EU-India pact, the move signals a competitive scramble for trade alliances and may have accelerated Washington's negotiations.
3. Contained Contagion: Despite the ferocity of the metals selloff—silver's volatility hit an astounding 186% on Friday—the spillover into broader equity markets was limited. This suggests a targeted repositioning rather than a systemic flight from risk.
Voices from the Floor
"The market is telling a clear story: growth is back on the menu," says Anya Sharma, a portfolio manager at Horizon Capital. "The ISM data was a game-changer. It validates the soft-landing thesis and makes commodities, especially non-yielding metals, less attractive in the near term."
Marcus Reed, an independent metals trader, offered a more cynical take: "This is a classic case of narrative whiplash. Last week, everyone was worried about deficits and debasement. This week, it's all about pristine economic data. The algos have flipped, and real assets are getting slaughtered. It feels manic and disconnected from the underlying physical tightness in silver."
Dr. Evelyn Park, a geopolitical economist at the Global Policy Institute, highlighted the strategic dimension: "The U.S.-India deal isn't just about tariffs; it's a strategic counter to China and a response to the EU's own pact. We're witnessing the real-time fragmentation of global trade into blocs, and markets are pricing in the benefits for the U.S. industrial complex."
Looking Ahead
Markets on Tuesday will digest a U.S. interest rate decision from Australia, key inflation prints from South Korea and France, and the latest U.S. JOLTS job openings data. Earnings from heavyweights like AMD and Pfizer will also test the corporate resilience narrative.
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