Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone
DIGEST – Stocks started the week on shaky ground yesterday, while precious metals continued to rally, and Treasuries softened across a steeper curve. Today, November’s US jobs report highlights the calendar.
WHERE WE STAND – A bit of a wobble in risk, gains across the Treasury curve, and some marginal USD downside, all wrapped up in trading conditions that rather resembled my hair (very thin, for those unaware!).
I’ll get back to all that in a sec, but first I should acknowledge that it was again the precious metals complex which provided the most intrigue, on a day that was rather typical of ‘classic’ festive markets. Gains were seen across the complex, with gold challenging the $4,350/oz highs seen at the back end of last week, and silver paring almost all of Friday’s decline. It was palladium that stole the show, though, with spot advancing around 6% on the day, benefitting from an EU decision last week to scrap a proposed ban on new internal combustion engine car sales from 2035.
For the rest of the PM space, though, it’s very much the same old story underpinning things – huge demand from reserve allocators, coupled with insatiable physical retail demand, helped along by expectations for further Fed rate cuts next year, and lingering worries over the unsustainable pace of DM government spending. None of that seems especially likely to change any time soon, hence I see little reason to do anything other than trade gold and silver from the long side, and would not be at all surprised to see a fresh record high in bullion, and further ATHs in silver, before the year is out.
As for markets elsewhere, as alluded to, there’s not especially much that bears commenting on this morning.
Stocks had a bit of an intraday wobble, led by the tech sector amid continued jitters over the AI theme, though I see little reason to see this as anything other than a wobble, with the path of least resistance more broadly continuing to lead to the upside. Dip buyers likely remain ready to pounce, especially as economic growth remains robust, earnings growth resilient, the trade backdrop relatively calm, and the monetary policy landscape increasingly loosens.
As for Treasuries, the curve steepened again yesterday, with there seemingly being no stopping that particular train for the time being, especially amid increased rumours that former Fed Governor Warsh may now be the front-runner to succeed Jerome Powell as Chair. Remarkably, Warsh would be about the only man less qualified than prior favourite Kevin Hassett to do the job, not least considering his damascene and politically convenient conversion to uber-dove in recent months, despite having spent most of the GFC wailing about inflation risks and believing tighter policy was imminently needed. I bet, somewhere, current Fed Governor Waller is wondering if it’s too late for him to change his name to Kevin, and be in with a shot of getting the top job – it would be good news for us all if he did!
Something else that struck me about Treasuries, yesterday, was that the benchmark 30-year yield today trades just about 5bp above the level at which we closed out last year. Somehow, a hell of a lot has happened, and nothing has happened, at the same time.
Speaking of nothing happening, that rather sums up the FX market yesterday, which also explains why I’ve left it until last. I shan’t be holding my breath for a significant pick-up in activity any time soon, not least when implieds remain on the floor.
LOOK AHEAD – For the last time this year, happy ‘Jobs Day’; and, yes, it still sounds weird saying that on a Tuesday.
Anyway, we’ll be getting a full November US labour market report later on, as well as the October establishment survey. I’ll focus on the former, here, which is set to show headline nonfarm payrolls having risen by +50k last month, earnings pressures remaining relatively contained at 0.3% MoM/3.6% YoY, and unemployment ticking up to a new cycle high 4.5%.
Of course, the FOMC are now very much in ‘data-dependent’ mode, with the reaction function continuing to tilt almost entirely towards supporting a stalling US labour market. Hence, any softness should spark a modest dovish repricing of policy expectations, with the USD OIS curve currently discounting just a 30% chance of a 25bp cut in January; though, it must be said, we will get the December jobs report before that next FOMC confab. For markets, I’d argue that focus will fall more on the economic story that the data tells, as opposed to any dovish policy implications, especially given the lack of Q4 data released thus far. Still, any equity dips should be viewed as buying opportunities, in my view, with the fundamental bull case still a very robust one.
Besides the US labour market report, we also get the latest UK employment figures today, as well as ‘flash’ PMIs from pretty much everywhere, and October’s US retail sales data. All of that, though, will probably be massively overshadowed by the NFP print.