Japan’s Nikkei rallies sharply

US stock indices were firmer across the board yesterday, with small cap stocks leading the charge. The Russell 2000 jumped 1.9%, while the Dow added 0.9%. The S&P 500 and NASDAQ ended the session up 0.3% and 0.2% respectively. Once again, investors had borrowing costs on their minds. The market assigns an 89% probability of a 25-basis point rate cut when the Fed’s FOMC ends its two-day meeting next Wednesday.

Source: TN Trader

This view was bolstered by a weaker-than-expected ADP Payroll release, which showed a loss of 32,000 private payroll jobs last month – its biggest monthly drop in over two years. This came in below the 10,000-gain anticipated, as well as the prior reading of +47,000. The Federal Reserve has made it clear that they are far more concerned about a weakening labour market than they are about above-target inflation.

Despite this, there will be plenty of interest when the latest Core PCE update is released tomorrow. This is the Fed’s preferred inflation measure. The last update was for August, when it came in at 2.9%, well above the Fed’s 2% target. This was also the highest reading since February, and it had been trending higher since April.

Could it possibly come in so high that the Fed has to put off a rate cut? Unlikely, but stranger things have happened. Investors were also buoyed by speculation that Kevin Hassett is President Trump’s pick to replace Jerome Powell as Fed Chair next May.

Mr Hassett is a well-known dove and seems likely to push for lower interest rates. There was also some good economic news yesterday after the ISM Services PMI jumped to 52.6. This was better-than-expected and indicated continued expansion across the sector, although it also showed a drop in the employment component. Today, there are Challenger Job Cuts and weekly Unemployment Claims.

Microsoft was in the news yesterday. The stock ended down 2.5% following a report that the company was cutting sales quotas linked to Artificial General Intelligence (AGI). The company subsequently denied this, and the stock was up 0.5% in early trade this morning. Apparently, investors aren’t completely convinced.

Nvidia also lost ground yesterday and is struggling to break back convincingly above resistance around $180. US stock index futures were modestly higher in early trade this morning ahead of the latest labour market data.

European stock indices were modestly firmer across the board, with gains led by the German DAX. The UK’s FTSE 100 rallied a touch, although it has effectively tracked sideways around 9,700 for the past week. The lack of movement came despite a dramatic fall in the UK’s Construction PMI. This fell to 39.4 in November, down from 44.1 in the prior month and on expectations of a reading of 44.5.

Source: TN Trader

As well as continuing to register a sharp contraction across the construction sector, this was also the steepest month-on-month decline in this data series since May 2020, during the nadir of the Covid crisis. Sector job cuts were the heaviest since August 2020. While much may be blamed on pre-Budget uncertainty, it’s also the case that the current government has talked down the UK economic outlook to such an extent that it has completely undermined business confidence.

Meanwhile, Ukraine-Russia negotiations continue with another round of talks scheduled in Miami between Ukraine’s Rustem Umerov and US envoy Steve Witkoff. French President Emmanuel Macron’s visit to Beijing adds a further diplomatic dimension, with expectations that he will press Chinese President Xi Jinping to take a more active role in facilitating a Ukraine resolution.

The US Dollar Index fell back towards 98.50 this morning, trading at its lowest levels since the end of October. The dollar selloff has been relentless for well over a week now, ever since the spot Dollar Index failed to break above resistance at 100.00 despite several attempts.

The probabilities of a 25-basis point rate cut following next week’s Federal Reserve monetary policy meeting have also shot higher, further undermining the US currency. This has come after several senior FOMC members spoke up to say that a weakening labour market was trumping inflation fears when it came to considering rates.

These concerns were brought to the fore yesterday following a very weak ADP private payroll number. There’s more US jobs data today, with Challenger Job Cuts and weekly Unemployment Claims. While the dollar is overdue for a bounce, the Dollar Index’s daily MACD indicates that momentum remains to the downside.

Source: TN Trader

Gold began this week on the front foot as it rallied to $4,265, its best level since 21st October. Prices had been pushing higher since trading at their post-record lows at the end of October. But unlike the slow and steady progress to all-time highs throughout September and early October, the recent daily price action has proved to be far choppier and less assured.

Despite this, it looked as if gold had a decent chance of retesting its October all-time high of $4,380.  But this week, gold has moved sideways, albeit with a lower bias. This may have kept the daily MACD down at levels from which a rally can build, but it has failed to boost investor confidence. Despite this, gold hasn’t reacted to silver’s sharp increase in intra-day volatility.

Source: TN Trader

Silver hit a fresh all-time high yesterday, coming within two cents of $59 per ounce. But it proceeded to turn sharply lower from there, dropping 4% to $56.62 soon after the European open. This was another demonstration of the kind of volatility one can expect when silver gets going.

The question now is whether this is a buying opportunity ahead of fresh all-time highs, or if silver has peaked? The daily MACD has turned down a touch from overbought levels. This would suggest that prices need to correct further to find a base from which silver can push higher.

But shorter-term MACDs suggest that silver is oversold, which raises the possibility of a bounce. But there’s no doubt that volatility has picked up in silver, and traders must be extremely nimble, whether they are playing over the short or longer term.

Source: TN Trader

There is very little to add to recent comments about crude oil. Front-month WTI traded up to $70 per barrel at the end of July, hitting highs seen five weeks previously. Since then, oil has drifted in a gently sloping lower trend, briefly breaking below $56 in October.

It rallied sharply over the following few days to hit $62.50. But since then, the downward trend has reestablished. Over the past few weeks, front-month WTI has been unable to break back above $60.

Source: TN Trader

Yesterday, there was a surprise US inventory build, which typically would pressure prices lower. However, geopolitical developments helped offset the bearish supply narrative. President Trump noted that talks between his envoy, Steve Witkoff, and President Putin were “reasonably good”. This sounds like an improvement on Tuesday’s “it’s a mess” statement, but who knows?

January Natural Gas prices hovered around the 5 BTU mark. Momentum traders continue to target the round number, but the strength of the recent run may leave the market vulnerable to sharp reversals should fundamental signals weaken. Despite this, the daily MACD is not excessively overbought, so further gains are possible.

Both Bitcoin and Ether were little changed this morning and holding on to recent gains. Bitcoin remains comfortably above support, which comes in around $80,000. Ether is back above $3,000 and appears to be consolidating.

Volatility remains contained, with the December VIX trading back below 18.00, typically a level that supports risk-taking. The steady reading suggests investors remain comfortable leaning into a potential year-end rally despite headline risks across tech, labour markets and geopolitics.

The bulls remain firmly in control despite yesterday’s Microsoft headlines briefly unsettling the market tone. Weak jobs data has underscored the near-90% probability of a Fed rate cut next week. Salesforce’s strong after-hours reaction adds further fuel to the bullish narrative.

There are some second-order US labour data due out today, but tomorrow’s PCE inflation report, the Fed’s preferred gauge, could either solidify or complicate the path to a December cut. For now, US stock index futures point modestly higher. History tends to favour the bulls as the Christmas holiday approaches, with many investors positioning themselves for a year-end rally.