January 15 Financial Market Update: Returning to Normalcy, M...

January 15 Financial Market Update: Returning to Normalcy, Market Rebound Underway—Back to Where We Started!

After experiencing numerous macro events this week, the financial markets have finally returned to a recovery trend. Particularly, the temporary easing of the geopolitical crisis in Iran and the Middle East has provided some relief to the markets. Currently, the overall market is in a recovery phase.

1. Gold declined, the US Dollar Index rose, and international crude oil prices fell mainly due to the temporary easing of geopolitical issues, slightly weakening risk aversion sentiment.

2. The bond market weakened overall, with yields rising. The reduction in risk aversion put short-term pressure on the bond market, while inflation concerns drove up yields, particularly noticeable in the 10-year long-term bond yield.

3. In the risk markets, US stock indices opened higher, with tech stocks driving the index up. The VIX effectively dropped to 15.38, reducing volatility risk and bringing the market back into an optimistic range. Meanwhile, the SPHB/SPHQ ratio remained around 1.59, indicating that the US stock market is in a risk-on optimistic zone.

The short-term easing of geopolitical tensions still doesn't allow us to let our guard down. The easing of Iran's current situation is mainly due to both Iran and the US softening their rhetoric, reducing the pressure of direct military conflict.

However, the US aircraft carrier heading to the Middle East may not be for offensive purposes but to help Israel defend. Once the carrier is in place, pressure on Iran may continue. Iran’s domestic situation has not been resolved, and if it cannot be controlled internally, Iran might take drastic measures and directly attack Israel.

To resolve the military conflicts in the Middle East, either Israel and the US stop pressuring, or Iran stabilizes its regime by solving internal problems. Currently, neither seems likely.

Although gold, as a major safe-haven asset, has retreated somewhat, its structure remains intact, meaning underlying concerns persist. Therefore, this weekend to next week remains a period requiring vigilance. We cannot ignore the stimulation of geopolitical risks.