15th May - Limited Progress

Forex

When it comes to Forex yesterday, the main news was that there was no news, or at least no significant updates coming from the first day of the Trump-Xi meeting. Trump was typically positive about the talks' progress without anything meaningful to show for it as of yet. China expressed 'interest' in buying more US oil to reduce its reliance on the Strait of Hormuz, while both agreed that the Strait should be open. There were no commitments, though, and both sides have effectively 'agreed to keep talking'.

On the day, the USD continued to receive safe-haven demand, with the DXY passing above 99.00 this morning and closing in on the key 100.00 level. The hot CPI and PPI inflation prints have seen the expected follow-through of a higher dollar, which is only being reinforced by increased uncertainty due to the lack of news on Iran. Unless we hear concrete news today from China, there is every chance that the USD continues to show strength as we close out the week.

USD strength was seen across the basket, with other currencies struggling on the day. The GBP was one of the biggest losers on the day, thanks in no small part to continued political instability. Health Secretary Wes Streeting resigned yesterday, effectively also casting a vote of no confidence in Prime Minister Keir Starmer and inviting a leadership challenge. Whilst this uncertainty remains, GBP will continue to be under pressure. The fact that we saw strong GDP figures yesterday that were largely ignored is further proof that politics is currently the overwhelming focus at present.

The AUD gave back some significant gains yesterday, likely due to a drop in precious metals that we will dive into later. We also see a lack of significant news that would benefit the AUD from the China talks, so we may have also seen some profit-taking after the currency's strong recent showings. The rate differential is still positive for the AUD, however, so this could be a shorter-term pullback before a continued push higher.

Indices

Yesterday's most significant news from the Trump-Xi summit was the announcement that the USA had approved shipments of H200 chips to 10 Chinese companies. The news gave strong support to AI and tech firms (Nvidia jumped 4.4% and Cisco Systems a huge 13.4%) and supported the market's expectations for positive news from the summit. Consequently, we saw the S&P and Nasdaq hit yet more fresh highs and also saw the Dow move back to close past 50,000, the first time since the start of the Iran conflict. We are still in the same position as we have been for a while; however, the markets remain stretched and reliant on a small few mega-tech companies. Previous comments remain valid that there is an asymmetric risk at present—good news will move the market but not by much, while bad news will move the markets significantly. As mentioned yesterday, buying at all-time highs at the moment remains a huge risk.

Precious Metals

Yesterday was another day of losses for Gold, but it also saw a sharp pullback in Silver as well. Gold continues to be hit by the "higher for longer" narrative around US interest rates, reducing demand for the non-yielding assets that are precious metals.

The move in Silver was particularly interesting. After a very strong start to the week, driven in part by the supply concerns around Silver mining in Peru, we have seen all of these gains given back over the course of the last 24 hours or so. The news from the China summit is likely to be the main catalyst. With the news of microchips being allowed to be sold to China, we are seeing expectations of a thawing of trade relations between the two countries. The chips themselves contain Silver, but not enough to move the market. The catalyst seems to be an expectation that there will be fewer Chinese restrictions on the supply of refined Silver they export, meaning an increase in global supply and thus a more readily available asset. Whether this expectation follows through into reality is yet to be seen and could be an interesting side note to look out for in the months to come following the summit.

Today's Key Market Drivers

• Trump-Xi, Day 2 - As with yesterday, this will be the main focus for markets today. Any news will move markets, and any development on Iran will have huge consequences.

• UK Political Updates - We may not see movement today, but any announcement about a leadership race or support for Keir Starmer will affect the GBP significantly.