What was lost has been regained might sum up the past month. Many financial markets recovered in January almost exactly what they gave up in December. December 24 marked the low point of the almost perfect V-shaped performance of many stock indices. The same was true for the oil price, which has been remarkably closelycorrelated with the S&P 500 for several months now. The Vix, the index that tracks the implied volatility of the S&P 500, has meanwhile produced a near mirror image of this curve, following almost precisely the opposite trajectory over the past two months. Just before Christmas, as market alarm bells rang, it was about twice as high as at the end of January. Gold, on the other hand, has taken a completely different path, following an upward trend since August that accelerated in December and January. Several factors could be put forward to explain this, but the news that central banks have been buying more gold than for 50 years is certainly significant.
The start to the year was then very strong. With a gain of 6.9%, the S&P 500 enjoyed its fifth best January since 1930, and the MSCI AC World Index the best opening since its launch in early 1988. This is encouraging and bolsters confidence in the financial markets as they begin the year. It means that many funds already have a risk buffer and dry powder with which to buy risky assets. However, one might question, as we did in our last monthly review, whether prices have moved too far, too fast. Politics and the economy as a whole have certainly not provided any positive impetus over the past five weeks. There are many, sometimes contradictory, reports about the U.S.-Chinese trade talks but the all-clear can only be sounded when the ink on the contracts is dry. And even this all-clear would not be convincing, as the U.S. action against one large Chinese telecommunications supplier shows in our opinion, among other things, that the U.S. authorities are concerned about more than the bilateral trade deficit or customs duties when it comes to China. Nor do recent developments in the United States suggest the predictability of U.S. foreign policy is going to improve. Special investigator Robert Mueller is on the verge of delivering his report on possible Russian interference into the U.S. election. And Trump's budget dispute with Congress could also have an impact on his decision-making. After all, his die-hard supporters regard the end of the federal government shutdown, despite the lack of a commitment to finance a border wall, as a capitulation to the Democrats. They are expressing their displeasure loudly, and Trump is often sensitive to criticism from his hardline fans.
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