Michael Brown, Senior Research Strategist at Pepperstone, Shares Today’s Market Analysis

Michael Brown, Senior Research Strategist at Pepperstone, Shares Today’s Market Analysis

Digest – Sentiment soured as last week drew to a close with stocks notching chunky losses amid renewed concern over the AI theme. Now, a bumper week awaits, including five G10 policy decisions, plus the latest US jobs and inflation figures.

Where we Stand – Here we go then, we’ve finally made it to the last full trading week of the year; and, what a year it’s been!

Frankly, so much has happened that it’s exhausting to even try and think back to the events that have dominated the last twelve months. We’ve had tariffs thrown around all over the place; trade ‘deals’ being done left, right, and centre; geopolitical tensions rumbling on; DM central banks continuing to ease policy; fiscal worries rearing their head; a relentless equity bull run, and equally relentless run higher in precious metals; and, much else besides, that I’ve probably forgotten about.

As for Friday, it had been shaping up to be one of those days where we were all set to just drift aimlessly into the weekend. However, it ended up being a rather more tumultuous affair than that, with sentiment souring rather significantly, amid another dose of scepticism when it comes to the broad AI theme. This scepticism was initially fuelled by Broadcom’s earnings on Thursday evening, where the firm refused to provide guidance for the quarter ahead, and then exacerbated by reports that Oracle’s data centres being built for OpenAI may be delayed by a year, to 2028, albeit with these reports later being denied.

In any case, the damage had been done, with that reporting enough to see the NQ slide around 2% to end the week, with spoos also slipping by around half that magnitude, resulting in both notching weekly declines. That said, not only do we continue to trade a mere whisker away from contract highs, when it comes to spoos at least, but we also remain north of the 50-day moving average as well. Hence, in keeping with the bullish view I’ve had for the last seven or eight months, this is a dip that I’d be viewing as a buying opportunity, with the fundamental case for further upside into year-end still a solid one, and favourable seasonality (aka the traditional ‘Santa Rally’) likely providing a helping hand as well.

Outside of the equity space, it was precious metals that again caught the eye, with both gold, and to a greater extent silver, putting in rather chunky intraday reversals, as souring risk appetite sparked a broad-based unwind of momentum trades. Still, bullion ended the week at 4,300/oz, and silver ended proceedings north of the psychologically key 60/oz mark, leading me to favour further upside in both, once calmer tones begin to prevail.

In keeping with that momentum unwind, we also saw Treasuries unwind a fair chunk of recent gains, with the benchmark 30-year yield ending Friday a chunky 10bp above the intraday lows seen just a day prior. It appears that those dip buyers who sought to lock in yield have now done so, giving way to edgier conditions ahead of this week’s NFP and CPI prints.

One interesting aspect of Friday’s trade, though, was the relatively calm nature of the FX space, despite the aforementioned fireworks elsewhere. G10s largely just meandered throughout the day, with the greenback marginally firmer, albeit conditions on the whole being somewhat directionless.

Still, the pound once again underperformed, with cable pulling back below the 1.34 figure, after the latest GDP data pointed to the economy having unexpectedly contracted by 0.1% MoM in October, as pre-Budget uncertainty acted as a drag on overall activity. While the monthly GDP series is incredibly noisy, that does now make it four months in a row of either no, or negative, GDP growth, with November hardly likely to be much better, and with overall risks to the outlook still tilting to the downside, not least considering that the Budget contained zero policies to boost growth. Cable still looks rather too lofty to me.

Look Ahead  A jam-packed week lies ahead.

On the policy front, we’ll almost certainly be getting a 25bp cut from the Bank of England on Thursday, as well as a 25bp hike from the Bank of Japan on Friday, while the Riksbank, Norges Bank, and ECB are all set to stand pat at their final meetings of the year.

Meanwhile, the data docket is busy too, highlighted by Tuesday’s US employment figures, and Thursday’s US CPI report. Both of these datapoints, though, are likely to be very noisy indeed, owing to data collection issues stemming from the government shutdown. Also on the docket this week is a busy week of UK releases, highlighted by November’s CPI figures on Wednesday, as well as the latest ‘flash’ PMI surveys from most major economies.

Besides that, a fairly busy week of central bank speakers awaits, while speculation over who will be named as the next Fed Chair continues too, especially after former Governor Kevin Warsh appears to have become a more serious contender for the role, per WSJ reporting on Friday.

Lastly, on the earnings front, figures from Micron (MU) will be watched closely amid increased jitters around the AI theme, while reports from both Nike (NKE) and FedEx (FDX) will be useful bellwethers of the economy at large.