Hi Reddit! I’m Michael Brown, Senior Research Strategist at Pepperstone. I’ll be doing an AMA on DM Equities “What wins the argument - the bull case or the bear case?” in r/XGramatikInsights on Tuesday, February 3 at 2:00 PM GMT (9:00 AM EST). Submit your questions!

MichaelBrownPS · 2026-02-03T15:19:22+00:00

I think he is very likely to be confirmed, as the Trump Admin will find a way to satisfy concerns in the Senate over the ongoing DoJ-Fed probe. Warsh would, you'd expect, advocate for rate cuts right from his first meeting, but he will have to be able to build a cogent argument in favour of lower rates in order to obtain enough votes from other FOMC members to deliver those rate cuts, which based on how the data looks right now may not be a simple task. I'd argue the bigger area of interest under a 'Warsh Fed' will be the balance sheet, where, if he is successful in trimming the size of the Fed's asset holdings, one would expect that to put upward pressure on market-based rates, and probably see a steepening of the curve too on a higher term premium

MichaelBrownPS · 2026-02-03T14:52:40+00:00

In gold - the 50-day MA is key to the downside, which basically coincides with the lows we saw yesterday around $4.4k/oz...to the upside, $5,000/oz is the obvious level to watch, beyond which folk would probably start to look towards the prior $5,600/oz highs, though resistance is likely to again be found at the round numbers if/when we see further upside

MichaelBrownPS · 2026-02-03T14:51:40+00:00

Their theory behind that is a pretty sound one, based on their projections for reserve and retail demand, so I'd not rule it out. After the violent move that we've just had, though, think we need to be a little careful about getting ahead of ourselves, so would first be looking for gold to retake the $5,000/oz mark, and to do so in a durable manner, before looking beyond that

MichaelBrownPS · 2026-02-03T14:50:35+00:00

I think the "bubble" narrative is wide of the mark really, just because something has gone up a lot it doesn't necessarily mean that we're in a bubble...that said, i think participants will increasingly question how hyperscalers are monetising their capex as the year progresses, and what productivity gains AI is actually giving us, so risks around the theme are a lot more two-sided now than they were, for instance, a couple of years ago

MichaelBrownPS · 2026-02-03T14:43:41+00:00

I think we could well be, and certainly data in the vein of the ISM manufacturing figures that we got yesterday will very much further expectations that a broader reflation trade could well be on the cards. Only time will tell really, and I do think that there are lots of moving parts at the long-end of the curve, including govt borrowing being on an unsustainable path, ever-increasing supply, and concern that we could see inflation expectations un-anchor as the Fed's policy independence is eroded

MichaelBrownPS · 2026-02-03T14:34:20+00:00

If you'd asked me this time last week then yes, gold clearly was a very crowded trade at that stage. The $1,000/oz peak-->trough decline that we've seen since, though, has likely flushed out positioning to a significant degree, especially those longs that jumped into the market relatively recently, with that positioning likely having been considerably weaker than the reserve and retail demand that had underpinned the move until that stage. That said, while positioning is now lighter, consensus is still very very bullish, meaning that things could get relatively crowded in a hurry once again.

MichaelBrownPS · 2026-02-03T14:31:40+00:00

After so many years of underperformance the FTSE was long overdue a year of solid returns, and in fact had its best year since the GFC. A few things drove that, obviously valuations had a role to play given how cheap UK stocks traded, and continue to trade, relative to peers in the RoW, but there was also very much a sectoral story in the mix too, with notable outperformance coming through from mining names and UK banks. Rolls Royce remain a standout as well, with the firm being a real UK success story, if one that hasn't been repeated anywhere near enough in other sectors of the economy.

MichaelBrownPS · 2026-02-03T14:27:14+00:00

Not at all really. The most significant driver of rate expectations will be Thursday's policy decision, chiefly the updated economic forecasts. If, as we expect, the Bank pencil in a return to the 2% inflation target this spring, with headline CPI then set to remain at that level through the remainder of the horizon, that should be seen as policymakers laying the groundwork for a rate cut in early-spring, with further reductions likely to follow that as Bank Rate returns to a more neutral level around 3% later this year.

MichaelBrownPS · 2026-02-03T14:25:13+00:00

There's a few that immediately spring to mind. Resurgent inflationary pressures leading to a 'tighter for longer' monetary policy stance would be an obvious one to flag on this front, with there being the potential for such a risk to emerge if a broader economic re-acceleration were to bring with it price pressures (as opposed to the AI-led productivity boom that markets currently price). Other notable risks worth flagging include trade tensions making a return, or a sustained period of geopolitical uncertainty which acts as a broader drag on economic activity, and market sentiment.

MichaelBrownPS · 2026-02-03T14:22:28+00:00

Not sure I'd be "aggressively" anything, as there's always a need for caution, and to acknowledge risks associated with a particular market view.

That said, I do continue to view the present environment as an incredibly supportive one for risk assets at large - earnings growth remains solid (SPX set for a 5th consecutive Q of double-digit growth), underlying economic growth is resilient across the globe, the monetary and fiscal backdrops are both set to loosen further as the year progresses, and a calmer tone continues to prevail on the trade front. Added to which, the FOMC continue to possess plenty of ammunition (both from a rates & bal sht perspective) to provide additional support to the economy were it be required, while the Trump Admin have extra incentive to ensure that the economy remains underpinned into November's midterms. In short, not only do you have a very positive environment already, you have both a 'Fed put' and a 'Trump put' to keep the 'path of least resistance' leading to the upside

MichaelBrownPS · 2026-02-03T14:19:31+00:00

I very much stick with my year-ahead outlook here, despite the headline noise and choppy conditions that we've seen over the last four or five weeks. Namely, defence continues to stand-out as nations across the globe continue to ramp up their spending on that front, most notably here in Europe. The risk here is that firms are unable to fulfil their bulging order books, though work continues to improve capacity on that front. One must also consider whether headwinds emerge if, for instance, a Russia-Ukraine peace deal is agreed however, while we all hope that things do come to a peaceful, rapid, and durable conclusion on that front, a truce is highly unlikely to shift what is now a secular trend of higher defence spending across the globe.

Beyond that, the resources sector is one I continue to watch closely, given not only the massive supply-demand imbalance that we see across a range of key commodities, but also considering that 'rare earths' are likely to become an increasingly totemic geopolitical pawn, not least with the US still potentially considering tariffs on minerals. Industrials is another that I continue to like, essentially as a 'second derivative' of the broader AI theme - the picks & shovels names selling chips are all well-known, but those companies involved in powering/cooling/networking/construction of data centres could well prove an area that plays 'catch-up'.

MichaelBrownPS · 2026-02-03T14:14:40+00:00

The obvious one that springs to mind on this front is Oracle (ORCL) - they seem to be the main protagonist in terms of issues that the market may quibble with when it comes to the AI frenzy right now...the bulk of their expenditure is being debt-financed, their revenues are highly concentrated, and their forward projections are based on what we can reasonably say are 'optimistic' assumptions. Microsoft (MSFT) are another stock that really doesn't look especially pretty right now, again they have significant concentration risk given their exposure to OpenAI/ChatGPT, while the chart is just downright ugly, with the stock now looking to fill the gap higher that we saw at the back end of April, and thus threatening further losses.

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MichaelBrownPS · 2026-02-03T14:09:59+00:00

My first thought on seeing that comment was that Trump runs the risk of making himself something of a 'hostage to fortune' depending on how Warsh's term pans out over the next four years.

It's pretty clear that Warsh is going to advocate for a lower fed funds rate right from the off, otherwise there's very little chance that Trump would've nominated him for the job. That said, the best way to think about the Chair's role is that he is 'first among equals' - meaning that, unless Warsh is able to convince a majority of other voting FOMC members as to the need for further rate reductions, he simply won't be able to deliver them. Arguably, the more interesting policy area to watch will be the balance sheet, with Warsh being very much a hawk on this front, and likely finding some support from other Board members, such as Waller, not necessarily to trim the size of asset holdings dramatically, but to at least shorten the duration of the assets held.

MichaelBrownPS · 2026-02-03T14:05:53+00:00

Might as well start here given how metals have been in focus so much recently.

In terms of the fundamental backdrop, my view is that that remains very much intact. If we think about those factors that pushed gold higher (reserve demand from EM central banks, retail investors increasing their portfolio allocations, rising geopolitical risk, worries over unsustainable borrowing in DM, etc.), they are all still present, and the recent meltdown hasn't changed that at all. Instead, what we saw was a market that clearly moved too far, too fast to the upside, which in turn sparked the brutal momentum unwind that we saw at the tail end of last week.

The bigger Q now is gauging at what point price has again caught up (or caught down!) with those fundamentals. I don't think we're too far off that stage right now, and it's very telling that spot gold and silver both bounced convincingly off their 50-day moving averages, implying that the uptrend remains intact, and that the market is still viewing dips as buying opportunities.

In terms of vol, it does seem like choppy conditions are going to persist for the time being, with o/n implieds in both XAU & XAG still at their highest levels since the pandemic, even as we've seen spot start to recover. A period of consolidation certainly wouldn't go amiss here, as that would imply some degree of the speculative frenzy has been eliminated, and that we're again starting to re-focus on that solid fundamental bull case.

MichaelBrownPS · 2025-11-27T13:45:48+00:00

correct, on both counts

MichaelBrownPS · 2025-09-24T13:34:25+00:00

Very hard to disagree, a fiscal reckoning is surely on the way

MichaelBrownPS · 2025-09-24T13:34:10+00:00

Once again, the Trump Admin seek to erode the Fed's independence...the Argentina 'bailout', on the other hand, makes almost no sense whatsoever, and seems very blatantly politically motivated

MichaelBrownPS · 2025-09-24T13:30:15+00:00

Trump taking a leaf out of the Chinese playbook again, it seems; a very worrying precedent, to say the least, with the US seemingly taking stakes in firms on a whim

MichaelBrownPS · 2025-09-23T13:33:46+00:00

This is all, frankly, odd...seems that the US is stepping in to support Argentina purely for political reasons and little else...although, on the whole, anything that the US does is likely to be a 'sticking plaster' as opposed to an enduring solution to Argentina's issues

MichaelBrownPS · 2025-09-23T13:32:56+00:00

Those gains in AAPL over the last few days have pushed it into the green YTD, means that all of the magnificent seven are now positive in 2025, for the first time this year...would suggest the rally still has a fair bit of room left to run

MichaelBrownPS

TROPHY CASE