RBA Faces Credibility Test as Inflation Breaches Target

The Senate is set to vote Friday on a crucial funding package aimed at keeping federal agencies open, with a partial government shutdown just hours away.

Even if the measure passes the Senate, a brief shutdown seems almost certain. The House of Representatives is not scheduled to return to Washington until Monday, and both chambers must approve the legislation before it can be signed into law by President Donald Trump.

Without final congressional action, a partial shutdown of federal operations will begin at 12:01 a.m. ET Saturday.

Graham's Last-Minute Demands Delayed Vote

The vote was delayed after Senator Lindsey Graham, a Republican from South Carolina, placed a hold on the legislation, preventing a quick consideration of the package.

Graham announced on the Senate floor earlier Friday that he would not lift his hold without a guaranteed vote on his bill to criminalize "sanctuary city" policies. The legislation seeks to impose criminal penalties on state and local officials who interfere with federal immigration laws.

He also demanded a vote on an amendment connected to the "Arctic Frost" investigation led by then-special counsel Jack Smith. This amendment would require officials to notify senators if their phone records are obtained in a criminal investigation.

Graham had previously criticized House Speaker Mike Johnson for including language in the spending package that repealed a law allowing senators to sue for up to $500,000 if their records were obtained during that investigation.

How a Compromise Unlocked the Stalemate

The deadlock broke after Graham received assurances from Senate Majority Whip John Thune. In a statement Friday afternoon, Graham confirmed that Thune supports his efforts to bring the sanctuary cities bill to a future vote.

Graham added that Thune "also supports, at a time to be determined, a vote on creating the ability for groups and private citizens, not members of Congress, that may have been harmed by Jack Smith and the Biden DOJ [Department of Justice] to have their day in court."

Following these assurances, Graham concluded, "I will lift my hold and vote for the package." The Senate is now scheduled to vote on a series of amendments before a final vote to pass the funding deal.

What's Inside the Spending Deal?

The agreement is designed to fund most of the federal government through the end of the fiscal year on September 30.

However, the deal separates funding for the Department of Homeland Security (DHS). The DHS, which has faced criticism from Democrats over its immigration enforcement actions, will be funded temporarily by a stopgap measure. The question of its long-term funding will be addressed later.

The funding package received a notable endorsement from former President Donald Trump, who encouraged lawmakers in a Truth Social post to support it.

As tensions escalate between the United States and Iran, reports of an impending military confrontation are gaining traction. President Trump has signaled that Iranian leaders are aware of a looming deadline, while the U.S. has simultaneously bolstered its military presence in the Middle East, fueling speculation of a potential conflict.

Unpacking Reports of a US Military Offensive

A significant report from Drop Site News, citing unnamed U.S. and Arab sources, alleges that a U.S. offensive on Iran could be scheduled for this Sunday. While the claims lack definitive evidence, the precedent of last year's abrupt attack lends them a degree of credibility.

According to sources who spoke with Drop Site News, top U.S. military officials have briefed a key ally in the region on the situation. The briefing suggests President Trump may soon authorize military action, and the allied nation is reportedly preparing for strikes to commence on Sunday.

The Strategic Goal: Regime Change Over Nuclear Threats?

An adviser to several Arab governments claims the primary U.S. objective is not neutralizing nuclear threats but instigating a change in the Iranian regime. This perspective appears to align with President Trump’s recent comments about supporting resistance movements and potentially sending aid, suggesting that the goal of regime change may be a core part of the administration's strategy.

Further intelligence suggests the Trump administration believes a successful military intervention could trigger internal protests within Iran, ultimately leading to the collapse of the current government.

Assessing Credibility and International Support

The credibility of these reports remains a key question, as major leaks would typically be confirmed by more established media outlets. With Iran supposedly aware of the deadline, observers are closely monitoring official channels for credible information. Some analysts suggest the "final deadline" might simply refer to the end of January.

Former intelligence officials have noted that Israeli Prime Minister Netanyahu anticipates an attack and has assured President Trump of Israel's support in establishing a new, friendly government in Iran. High-level Arab intelligence sources have also indicated to Drop Site News that a U.S. strike may be forthcoming.

Potential Market and Geopolitical Fallout

Should a military assault materialize, the repercussions could be widespread and severe. The most likely outcomes include:

• Bitcoin Market Volatility: The cryptocurrency market could see fluctuations similar to trends observed during last year's geopolitical events.

• Heightened Regional Instability: The entire Middle East would likely experience a sharp increase in instability.

• Long-Term Disruption: The conflict could trigger lasting disruptions across the region with serious global implications.

As the reported deadline approaches, both Iran and the international community remain on high alert. The possibility of military action continues to cast a shadow over the geopolitical landscape.

The de-escalatory remarks From Trump aren’t necessarily new, but heading into the weekend, the market is trying to gauge where Trump’s head is at, said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Any signal that he may lean toward diplomacy rather than military action creates immediate selling pressure,” she added.

Source: Bloomberg

A new Dutch government is rapidly taking shape after the social liberal D66, Christian Democrats (CDA), and liberal conservative VVD parties reached a coalition agreement. With the cabinet expected to be assembled and in place by the end of next month, this formation period is proving significantly faster than in previous election cycles.

However, the incoming government faces a major hurdle from day one. Holding only 66 of the 150 seats in parliament, it will operate as a minority government—a new dynamic for Dutch politics. This setup means the coalition must build a majority by winning over opposition parties for every policy it wants to pass.

A Pro-Business Playbook for Growth

The coalition's economic agenda is firmly pro-business, even with tax increases planned to fund higher defense spending. Key pillars of the plan include:

• Lowering energy costs for Dutch manufacturers.

• Providing subsidies to support the transition to green energy.

• Allocating additional funds for housing to boost the construction sector.

• Tackling high nitrogen emissions through financial support for farmers who voluntarily cease operations.

The government also intends to cut regulatory burdens for businesses and maintain favorable conditions for expats. By reversing previous cuts to the science and education budget, the agenda supports long-term innovation. The coalition is actively targeting a structural GDP growth rate of 1.5%.

Balancing the Books: Defense Up, Social Spending Down

Despite significant new spending on defense, the Netherlands is on track to keep its budget deficit within the EU's 3% of GDP limit. Government debt is already well below the 60% debt-to-GDP target, positioning the Dutch as one of Europe's most fiscally disciplined nations.

This fiscal balance comes at a price. To offset the increased defense expenditure, the government plans large cuts to healthcare spending, primarily through higher co-payments. Social security will also see reductions, while both households and businesses will face higher taxes. Longer-term spending plans are also expected to add budgetary pressure beyond the upcoming government period.

A More Cooperative Stance on Europe

The incoming government is poised to adopt a more positive and cooperative approach toward the European Union. While it still denounces Eurobonds, its definition is narrow, focusing only on the pooling of national public debt.

Crucially, the coalition remains constructive toward existing common financing instruments—a notable shift from the previous government. It also expresses support for strengthening the capital market and banking unions.

An Ambitious Political Experiment

The Netherlands is set to have a new government in short order, armed with an ambitious agenda focused on business competitiveness, increased defense spending, and strict fiscal management. The coalition’s success, however, will hinge on its ability to negotiate and win support from the opposition. A new political experiment is just beginning.

Gold and silver prices just experienced a stunning sell-off, with gold dropping over 10% and silver plummeting more than 30% ahead of the weekend. This historic volatility comes just two days after gold posted its largest one-day gain on record.

But for market analysts, this violent price swing was no surprise. After an explosive January that saw gold soar 29.5% to a high of $5,602 an ounce and silver skyrocket 68.5% to an intraday record above $121, both precious metals were seen as significantly overextended. This kind of momentum, especially within the first month of the year, was never going to be sustainable.

Figure 1: Gold and silver prices corrected sharply after a massive January rally, but analysts suggest the underlying bullish trend remains intact.

An Overextended Rally Hits a Wall

Analysts widely agree that the sell-off was a necessary technical correction. "The past couple of days have been incredibly volatile for metals across the board," said Neil Welsh, Head of Metals at Britannia Global Markets. "The pullback is probably not unexpected given the speed and magnitude of January's rally. Gold and silver had become technically overextended."

Welsh noted that positioning, leverage, and options activity had reached levels typically associated with short-term peaks.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, added that the rapid gains made trading conditions difficult, thinning out liquidity. "Market makers have grown reluctant to take and hold risk, resulting in thinner liquidity and wider bid-offer spreads," he explained. Hansen described the gold market's recent behavior as shifting from "the adult in the room to behaving like an angry teenager, just like silver."

Matthew Piggott, Director of Gold and Silver at Metals Focus, called the January rally "irrational exuberance" and framed the current sell-off, while extreme, as a healthy market correction.

Why the Long-Term Trend Remains Intact

Despite the brutal selling pressure, most analysts believe the fundamental uptrend for precious metals has not been broken. While cautioning investors against jumping back in too quickly, they expect buyers to step in and support prices at lower levels.

"I believe the broader trend remains intact," said Welsh. "The macro forces that drove gold, silver, and copper are still firmly in place. This episode appears to be a positioning correction within an ongoing uptrend, not the end of one." He expects precious metals to remain well-supported through 2026, though with wider trading ranges.

Hansen maintains that gold still has a potential path to $6,000 an ounce by the end of the year.

The core bullish case rests on persistent global uncertainty. "At any moment, we could see an unpredictable policy decision instantly upend the status quo again," Piggott noted. "As long as that threat remains in play, it will continue to drive bullish sentiment in gold and silver."

Key support levels to watch include $4,600 an ounce, according to Ipek Ozkardeskaya at Swissquote, and an initial support at $4,700, according to Alex Kuptsikevich at FxPro. Ozkardeskaya added that pullbacks will likely be seen as buying opportunities, as the primary drivers—G7 debt, a weaker U.S. dollar, and geopolitical tensions—are still in play.

The Federal Reserve Wildcard

Adding a new layer of complexity is a potential shift at the U.S. Federal Reserve. President Donald Trump announced Kevin Warsh as his nominee for the next Fed Chair. Warsh, a former Fed governor, is known as an "inflation hawk" and is expected by some to bring a more nuanced approach to monetary policy, according to Charlie Ripley of Allianz Investment Management.

However, analysts believe Warsh is unlikely to defy Trump's public demand for lower interest rates. "The U.S. president has made it sufficiently clear that he wants to see significantly lower interest rates," said Thu Lan Nguyen, Head of Commodity and FX Research at Commerzbank. She predicts the Fed would likely yield to pressure and cut rates more than the market currently expects, which would keep gold prices well-supported.

Economic Data Complicates the Fed's Next Move

Current market pricing reflects this uncertainty. According to the CME FedWatch Tool, traders see the first rate hike of 2026 in June and are only pricing in two cuts for the entire year.

Some institutions are even more hawkish. Economists at BNP Paribas now expect the central bank to keep interest rates unchanged at the current 3.5%-3.75% range throughout 2026, citing solid economic growth.

Meanwhile, fresh inflation data complicates the Fed's path. The U.S. Producer Price Index (PPI) for December jumped 3.0% year-over-year. Core PPI, which excludes food and energy, rose 3.3%, suggesting inflation is becoming more embedded in the economy. This data muddle interest rate expectations ahead of a busy week of economic reports.

Key Economic Events to Watch

• Monday: ISM Manufacturing PMI, Reserve Bank of Australia monetary policy meeting

• Tuesday: US JOLTS job openings

• Wednesday: U.S. ADP employment data, ISM Services PMI

• Thursday: Bank of England and European Central Bank monetary policy meetings, US jobless claims

• Friday: US Nonfarm Payrolls, University of Michigan Preliminary Consumer Sentiment

Oil prices edged slightly lower on Friday, consolidating gains near six-month highs as the market continues to be swayed by persistent geopolitical tensions between the United States and Iran.

Brent crude futures settled at $70.69 a barrel, down a marginal 2 cents, or 0.03%. Meanwhile, U.S. West Texas Intermediate (WTI) crude ended the session at $65.21 a barrel, a decline of 21 cents, or 0.32%. Despite the small dip, both benchmarks are set for their largest monthly gains since 2022.

US-Iran Standoff Dominates Market Focus

The primary driver for oil markets remains the tense situation involving Iran. "It's really all about Iran right now," said John Kilduff, a partner with Again Capital. "The market had priced in a lot of geopolitical risk on Iran, but it's difficult to quantify the market at this point."

Prices had surged to their highest levels since early August on Thursday after reports that U.S. President Donald Trump was considering actions against Iran, including targeted strikes, which heightened concerns over potential supply disruptions.

While both nations have since indicated a potential willingness to engage in dialogue, significant hurdles remain. Tehran stated Friday that its defense capabilities are not up for discussion. Adding to the pressure, the U.S. issued new sanctions targeting seven Iranian nationals and at least one entity as it reinforces its military presence in the Middle East.

Phil Flynn, a senior analyst with Price Futures Group, noted that the recent price gains have paused amid "prospects of a chilly ceasefire between Russia and Ukraine and the possibility that an attack on Iran might not occur."

Economic and Supply Factors Add Pressure

Beyond the geopolitical arena, other factors are beginning to weigh on oil prices.

Dollar Strength Creates Headwinds

A stronger U.S. dollar, which rose from four-year lows, put some pressure on crude. The dollar gained strength after President Trump announced he would nominate former Federal Reserve Governor Kevin Warsh to lead the central bank once Jerome Powell's term concludes in May. A stronger dollar can curb demand for oil by making it more expensive for buyers using other currencies.

Global Supply Picture Shows Easing

Signs of increasing oil supply also contributed to the shift in market sentiment. Key developments include:

• Rising U.S. Production: American crude oil output is recovering following recent shutdowns.

• Kazakhstan Resumption: Production at the Tengiz oilfield is nearing a restart.

• Russian Maintenance: Russia's primary oil refining maintenance periods are expected this month and again in September.

"Given the week's bullish performance, it is reasonable to expect some profit-taking ahead of the weekend," said Tamas Varga, an analyst at PVM Oil Associates.

Analyst Outlook: Oversupply vs. Geopolitical Risk

Looking ahead, market analysts are balancing the risk of supply disruptions against the prospect of oversupply. A Reuters poll of 32 analysts concluded that most expect oil prices to hold near the $60 per barrel mark for the year, reflecting this delicate equilibrium.