Brent crude held up in European session. Iran’s threat to imminently stop oil exports to some EU countries has raised concerns. However, Iran’s comments are more likely a threat than an actual move by the Middle East nation which has heavy reliance on oil exports. While the market has speculated that countries that did not support sanctions (such as China) would take this advantage to increase oil purchases at a discount, the reality is that China, Irans biggest buyer of crude, continue to buy only half the volumes. Other Asian countries, such as South Korea and Japan, are reducing their intakes. This should have negative impacts on Iran’s economy. Therefore, it’s not likely for Iran to put the supply halt in action unless it has secured other buyers for its oil. Nevertheless, oil price will likely remain volatile as long as tensions over Iran remain uncertain.

Gold consolidated after failing to break above 1700. However, the near-term outlook for the metal remained strong. Negative real interest rates, inflationary expectations and devaluation of fiat currencies will increase appetite for the precious metal. It was impressive that physical gold demand in Asia was strong last year despite elevated price level. China, notwithstanding its status as the largest gold producer in the world, tripled its gold imports from Hong Kong.

Reacceleration of inflation in China, despite seasonally affected, may reduce policymakers’ urgency to loosen monetary policies. On Friday, China will release its preliminary trade data which will probably show that the country’s copper imports slowed in January due to Lunar New Year holiday.

Ahead of the BOE meeting, the UK released industrial production data which rose +0.5% m/m in December after slipping -0.7% a month ago. On annual basis, the figure contracted -3.7% while the November reading was revised down to -3.6%. Manufacturing production added +1.0% and +0.8% on monthly and yearly basis respectively. Focus of the day will be the 2 central bank meetings. While the ECB is expected to hold the main refinancing rate unchanged at 1%, the BOE will probably expand asset purchases by +50B pound. The economy has been dismal in the UK. The central bank had refrained from adding more easing measure due to stubbornly-high inflation. However, in recent months, inflation has started to moderate with headline inflation in December easing to +4.2% y/y from +4.8% a month ago and +5.2% in September. This should give policymakers flexibility to add more stimuli to bolster growth.