25 02 11 Bloomberg Long News

(Bloomberg) — As President Trump announced a 25% import tariff on steel and aluminum and the introduction of reciprocal tariffs, investors flocked to safe-haven assets. The dollar was slightly stronger against most G10 currencies, and notably, gold surged over 1.7% at one point, breaking through the $2,900 per ounce mark to hit a new high. MUFG assessed that "the increased risk of greater disruption to global trade from additional tariff hikes supports the dollar." However, the New York stock market rebounded with a tech rally, and in the short term, the U.S. consumer price index and remarks from Fed Chair Powell, due this week, are in focus.

Overnight, the dollar-won exchange rate (BGN) closed around 1,451 won, down 3.2 won from the previous trading day, showing relative resilience of the won. In Korea, there seems to be optimism that the impact of Trump's tariffs may not be as significant as expected. Bloomberg economist Kwon Hyo-sung diagnosed that while the steel industry, which accounts for about 13% of the U.S. export market, would be hit, the overall impact on the Korean economy would not be significant. Barclays also predicted that the impact on Korea could be greatly reduced due to the different composition of trade items between Korea and the U.S. in the case of item-specific reciprocal tariffs. Here are the key issues that market participants may be interested in.

Gold Prices Near $3,000 on Trump Tariffs, China Demand

Gold prices hit a record high as Trump announced various tariffs, adding to uncertainty in global financial markets, and China allowed insurers to buy gold. Spot gold prices soared to $2,911 per ounce on Monday, and if Trump's tariffs continue to shake the market, $3,000 seems only a matter of time. Chinese authorities launched a pilot program last Friday allowing 10 domestic insurers to invest up to 1% of their assets in gold. Minsheng Securities estimated that about 200 billion yuan ($27.4 billion) of funds would be affected.

Moreover, the People's Bank of China (PBOC) increased its gold reserves for three consecutive months through January, indicating a continued push for diversification of foreign exchange reserves despite gold prices being at record levels. In the past, China has tended to continue buying gold for several months once it starts. Notably, during Trump's first term, the PBOC increased its gold holdings for about 10 consecutive months. Westpac Banking assessed that "gold remains well-positioned, with little to hinder it," adding that "the inherently unpredictable and disruptive Trump threatens tariffs on both allies and adversaries, and warns BRICs to brace for 100% tariffs if they attempt de-dollarization, all of which enhances gold's safe-haven appeal."

European Gas Prices Hit Two-Year High

European natural gas prices hit a two-year high and inventories are rapidly depleting, putting Europe at risk of another energy crisis. The Dutch TTF futures, which have risen for four consecutive weeks, surged 5.4% at one point on Monday to €58.75 per megawatt-hour, the highest since February 2023. Continued cold weather in Northwest Europe is likely to sustain the early-year rally in natural gas demand.

The risk of gas stock depletion due to increased fuel consumption is present, with inventories already at 49% of total storage capacity, compared to 67% at the same time last year. According to ICIS's monthly outlook, European gas consumption is expected to increase by 17% year-on-year, driven by residential and commercial demand. ICIS predicted that end-of-winter inventories would be only 37%. Global Risk Management reported that not only near-term but also 2026-2027 futures prices have risen.

Goldman Sachs 'Hedge Funds Turn Bullish on U.S. Stocks'

Hedge funds are abandoning their bearish outlook on the U.S. stock market as corporate earnings come in stronger than expected. According to Goldman Sachs' prime brokerage report for the week ending February 7, hedge funds ended five consecutive weeks of net selling and bought U.S. stocks at the fastest pace since November last year. The information technology sector, particularly software and semiconductor stocks, recorded the largest net purchases since December 2021.

Regarding this move, Vincent Lin, co-head of Goldman Sachs' Prime Insight and Analysis, diagnosed in an investor memo that "it suggests hedge funds have started to take a more active interest in the AI theme since the deep-sea stock sell-off on January 27." John Flood, partner and head of U.S. equity sales trading at Goldman Sachs, pointed out that "in an uncertain macroeconomic environment, micro data heralds another strong earnings season."

Trump's Gaza Plan Hints at Possible U.S. Debt Reduction

Trump said in his Gaza plan that Palestinians would not be guaranteed the right to return to that territory. In a Fox News interview, he replied to a question about whether they have the right to return to Gaza, "They will have much better housing, so no." He said it would take years to rebuild Gaza, and instead, they would be relocated to other "safe communities," and Gaza would be "a real estate development for the future that I own." This is likely to provoke anger from Palestinians and many countries around the world.

Meanwhile, Trump said that Elon Musk's Department of Government Efficiency (DOGE) found something strange while examining Treasury data, suggesting that "debt may be less than thought." It is unclear whether he is talking about U.S. government debt or payments processed through the Treasury. An anonymous administration official said that DOGE's review and improvement of the Treasury's payment system would reduce future deficits and debt.

BP Shares Surge on Elliott's Stake Acquisition

BP shares surged after a Bloomberg report that Elliott, one of the world's most aggressive activist funds, secured a significant stake in BP. BP jumped over 8.2% at one point in London trading on Monday to trade at 468.9 pence, the biggest gain since 2020. BP has experienced ups and downs over the past 15 years, from the Deepwater Horizon spill to the sudden dismissal of CEO Bernard Looney, who caused internal scandals.

According to people familiar with the matter, several competitors are crunching numbers on the possibility of BP mergers and acquisitions. It is unclear whether anyone is seriously considering a merger or acquisition, but the fact that such talks are happening shows how far BP has fallen. Biraj Borkhataria, an analyst at RBC Europe, said, "If it's an activist fund, they would at least demand a change of BP's chairman."

For inquiries related to the article:

Kim Dae-do (London), dkim640@bloomberg.net;

Seo Eun-kyung (New York), eseo3@bloomberg.net