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CENTRAL BANKS & THE END OF AN ERA

Alright team, Samuel Leach here. What a difference a week makes! When the bears thought they had us cornered, reeling from tariff shocks and political noise, the market flipped the script with astonishing force. We saw the S&P 500 claw back its losses and embark on its longest winning streak in two decades. Over in the UK, the FTSE 100 continued its relentless march into record territory, seemingly defying gravity. Volatility? Crushed. Fear? Evaporated. It felt good, didn’t it? But let me tell you, this is precisely the moment when discipline matters most. Complacency is the fastest route to ruin in this game.

Last week’s rally was a potent cocktail: a US jobs report that hit the sweet spot – not too hot, not too cold – combined with a Federal Reserve Chair who managed to sound resolute on inflation without slamming the door shut on future policy easing. Add in a slight cooling of the political rhetoric directed at the Fed, and you had the perfect recipe for a risk-on explosion. The S&P 500 surged past 5,680, the Dow cleared 41,300, the Nasdaq passed 20,000, and the FTSE 100 closed just shy of 8,600 after 15 straight days of gains. Phenomenal stuff.

But while equities partied, other assets told a different story. Gold, our trusty safe haven, pulled back sharply from its $3,500 peak, settling around $3,230 as immediate fears subsided. Oil continued its slide, with WTI dipping below $59 and Brent near $61, reflecting easing geopolitical tensions and perhaps a less rosy demand picture. The VIX, the so-called fear gauge, collapsed below 23. These divergences are important clues – the market isn’t moving in perfect lockstep.

An End of an Era: A Tribute to Warren Buffett

Before we dive into the week ahead, we have to acknowledge a seismic event announced over the weekend – the stepping down of Warren Buffett as CEO of Berkshire Hathaway at the end of this year, after an unparalleled 60-year reign. Let’s be clear: this is the end of an era. There isn’t a trader, investor, or market participant alive today who hasn’t been influenced, directly or indirectly, by the Oracle of Omaha.

From 1965 to 2025 – think about that. Sixty years at the helm, transforming a struggling textile company into one of the largest, most respected conglomerates on the planet. His track record is simply staggering, built not on complex algorithms or fleeting trends, but on timeless principles: value investing, understanding businesses, patience, and integrity. He taught generations the power of compounding, the importance of a wide economic moat, and the virtue of being “fearful when others are greedy and greedy when others are fearful.”

In a world obsessed with short-term gains and instant gratification, Buffett was the ultimate long-term thinker. His annual letters were masterclasses in business and investing wisdom, delivered with characteristic wit and humility. He demystified investing for millions, proving that success wasn’t about predicting the market’s every wiggle, but about identifying great companies and holding them for the long haul.

While his successor, Greg Abel, is highly respected and has been groomed for the role, there’s no replacing an icon. Buffett’s departure marks a symbolic shift in the investment landscape. His wisdom, his steady hand, and his unwavering commitment to shareholder value have been constants through decades of market turmoil. We owe him a debt of gratitude. His legacy isn’t just the immense wealth created for Berkshire shareholders; it’s the enduring principles he championed. A true legend steps aside.

The Week Ahead: Judgement Day for Central Banks

Now, back to the immediate task. Where do we go from here? This week, the spotlight shifts squarely onto the central banks. Forget the noise; focus on the signals from the Federal Reserve (FOMC) on Wednesday and the Bank of England (BoE) likely on Thursday. Their words will dictate the market’s next move.

• FOMC (Wednesday): No one expects a rate change. The drama lies in the statement and Powell’s press conference. After last week’s jobs report and his relatively balanced tone, the market desperately wants confirmation that the worst is over and rate cuts are still vaguely on the horizon for later this year or 2026. Powell needs to walk a tightrope: acknowledge the resilient economy and sticky inflation data without sounding overly hawkish and killing the rally. Any hint that rate hikes are back on the table, however remote, or a significant pushback against market expectations for future easing, could trigger a violent reversal. Conversely, if he maintains a steady, data-dependent stance, the market might breathe a sigh of relief.

• BoE (Thursday): This could be even more pivotal for UK assets and GBP. Governor Bailey has been dropping hints about potential rate cuts, a stark contrast to the Fed. If the Monetary Policy Committee delivers a dovish statement, potentially even cutting rates now (though a hold is more likely), or strongly signals an imminent cut, expect Sterling to weaken and the FTSE 100’s rally could get another boost (as lower rates generally support equities). A surprise hawkish hold, emphasising UK inflation concerns, would likely see GBP strengthen and could put the brakes on the FTSE’s record run.

Remember, UK markets are closed on Monday for the bank holiday, which could thin out liquidity early in the week.

Trading Opportunities: Navigating the Central Bank Gauntlet

This isn't a time for blind optimism. It's a time for calculated moves based on clear levels and risk management. Here’s where I see the actionable plays for those of us actively managing risk and seeking alpha:

1. Equity Indices: Riding the Wave, Eyes on the Shore

• The Play: The momentum is undeniably upwards, especially in the FTSE 100 which seems unstoppable, and the S&P 500 which clawed back all its losses. The path of least resistance seems higher.

• Strategy (Day Traders/Active): Look for continuation, but don't chase blindly. Use pullbacks to key support levels as entry points. For the S&P 500, the 5650-5660 zone is now critical support; a dip and hold here is a long trigger, targeting 5700 and potentially 5750. For the FTSE 100, support sits around 8550; longs on dips targeting 8650+. Keep stops tight below these support zones – a break would signal a potential reversal.

• Strategy (Positional): Advise clients to hold existing longs but exercise caution adding significant new exposure before the Fed (Wednesday) and BoE (Thursday) speak. These events are binary risks. Consider using the rally to trim overweight positions or hedge using index puts if risk tolerance is lower. Post-event, if the central banks remain market-friendly, look to add exposure on confirmation.

• Event Volatility: The FOMC/BoE announcements will cause volatility. Nimble day traders can play this using short-term options straddles/strangles on SPY or QQQ around the announcement times to capture the expected move, regardless of direction. Close these quickly post-event.

2. Gold: Testing Key Support

• The Play: Gold took a breather, pulling back from the stratosphere above $3500 to around $3230. This pullback is healthy, but the key is whether support holds.

• Strategy: The $3200-$3220 level is now crucial. I’m watching this zone like a hawk. If we see buyers step in and defend this level (look for bullish price action on intraday charts), it presents a solid risk/reward long entry. Target a move back towards $3280 initially, then $3300. Place stops firmly below $3190. A break below $3190 invalidates this setup and suggests a deeper correction is underway. The Fed's tone on Wednesday will be critical – a dovish tilt supports gold, while a hawkish surprise could pressure it further.

3. Oil: Still Stuck in the Mud

• The Play: Despite the equity rally, oil (both WTI and Brent) remains weak, weighed down by easing geopolitical premiums and potential demand concerns. WTI is struggling below $59, Brent below $62.

• Strategy: The trend remains bearish, but my long-term is still bullish. I’m looking for opportunities to buy rallies in support. For WTI,. Weekly inventory data could provide short-term catalysts, but the bigger picture remains soft unless we see a significant supply disruption or a major shift in demand expectations.

4. VIX: Complacency Creates Opportunity (Carefully!)

• The Play: The VIX has plummeted back below 23, indicating a sharp drop in fear. While this reflects the current bullish equity sentiment, such low levels often precede volatility spikes, especially with major central bank events looming.

5. Forex: Central Bank Divergence is Key

• GBP/USD: All eyes are on the Bank of England. Governor Bailey has hinted at cuts. If the BoE delivers a dovish statement or signals cuts are imminent, GBP/USD is likely to break lower. Look for a sustained break below 1.3250 to initiate shorts, targeting 1.3150 or even 1.3100. Conversely, if the Boe surprises with a hawkish hold (emphasising inflation), a break above resistance at 1.3330-1.3350 could trigger longs towards 1.3450. This is purely an event-driven trade.

• EUR/USD: Currently hovering around 1.1300. The Fed meeting is the main catalyst. A dovish Fed (confirming no more hikes, maybe hinting at future cuts) could see EUR/USD break above 1.1350 resistance, opening the door to 1.1400-1.1420. A surprisingly hawkish Fed (pushing back strongly against cut expectations) could break support around 1.1250, targeting 1.1180. Trade the break post-FOMC.

• USD/JPY: Caught between risk appetite (which pressures USD/JPY lower) and potential yield differentials (which could support it). Closed around 144.95. If the Fed is dovish and risk appetite remains strong, look for a move towards 144.00 support. If the Fed sounds hawkish or risk aversion returns, a retest of 146.00 is possible. Given the BoJ's inaction, US factors dominate here.

Final Word:

Don't get hypnotised by the green screens. Last week's rally was impressive, but this week's central bank meetings are genuine inflection points. They can validate the current optimism or send markets scrambling again. My approach is straightforward: respect the momentum but demand confirmation. Trade the levels, manage your risk meticulously, and be prepared to react swiftly to whatever Powell and Bailey throw at us. This isn't a time for guesswork; it's a time for precision and discipline. And as we navigate these markets, let's take a moment to reflect on the giants like Buffett whose principles provide a timeless compass. Stay sharp, stay focused, and let's navigate this together.

Get stuck in and become a market expert on our ofqual regulated financial diplomas. www.samuelandcotrading.com 

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Trading involves significant risk, and you should consult with a qualified professional before making any investment decisions.