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The central bank doves are forcefully back following a significantly lower-than-expected US JOLTS print, and on the back of a surprisingly dovish comment from an otherwise… hawkish Isabel Schnabel from the European Central Bank (ECB).

Due today, the ADP is expected to print 130K private job additions in the US last month, and the Atlanta Fed’s GDP forecast is expected to hint at a sharp decline in Q4 growth to 1.2% from above 5% printed last quarter. If that’s the case, the Fed doves will remain in charge of the market, but the everything rally will likely turn into a… bond rally as we are now at a juncture where the bond optimism might only persist with increased recession probabilities, which doesn't bode well for equity appetite.

The S&P500 closed slightly lower, gold saw support near $2000 per ounce and the EURUSD slipped into the bearish consolidation zone after clearing a critical Fibonacci support.

Crude oil remains sold in a lower-highs-lower-lows pattern and the Chinese CSI 300 sinks to the lowest levels in almost 5 years after Moody’s lowered the country’s sovereign outlook.

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US yields rebounded and major indices sold off yesterday as markets have priced in a beyond-reasonable amount of rate cuts from the Federal Reserve (Fed) for next year based on a soft-landing scenario. All eyes are on the US jobs data for some comfort… that may or may not come.

Either soft data will cement the Fed rate cut bets or robust data will inject uncertainty and volatility to the market. In this context, the JOLTS data is expected to show lesser job additions in the US in October. But note that the US jobs market was impacted by strikes last month, last month’s negative impact could turn out to be positive for this month, and the latter could eventually blur the visibility of the health of the US jobs market. Presently, the markets price in around 125bp cut from the Fed next year, that’s obviously significantly lower than where the Fed sees its rate by the end of next year.

The US 2-year yield jumped to 4.66% level as the 10-year yield rebounded to 4.30% yesterday, the US dollar jumped past its 200-DMA, and gold got hit by a more than $100 selloff after trading at an ATH on Monday’s open. The selloff in crude oil continues. The barrel of US crude just slipped below the $73pb level this morning, as oil bears totally ignored the Saudi Energy Minister Abdulaziz bin Salman’s warning that production cuts can ‘absolutely’ continue past Q1 if needed.

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The Federal Reserve (Fed) President Jerome Powell pushed back against the rate cut bets at his speech given in Atlanta last Friday. He is of course playing the card of ‘high for long’ rates to tame inflation, yet he hinted that the Fed will probably not hike rates when it meets this month. Fed rate cut expectations went through the roof when it became clear that the Fed will stay pat again this month. The US 2-year fell to nearly 4.50% on Friday, the 10-year yield tipped a toe below the 4.20% mark. Gold spiked to $2150 per ounce this morning. The S&P500 flirted with the summer peak, the rate sensitive Nasdaq closed a few points below the 16000 and iShares core US REIT ETF jumped nearly 2.70% last Friday.

The SPDR’s energy ETF, on the other hand, barely closed above its 200-DMA, as last week’s OPEC decision to cut the production supply by another 1mbpd and to extend the Saudi cuts into next year barely impressed oil bulls. The barrel of US crude remained aggressively sold near the 200-DMA last week, and we are about to step into the $70/73pb region which should give some support to the market. But with the clear deterioration of the positive trend, and the lack of any apparent boost to the oil market following last week’s OPEC meeting, there is a chance that we will see oil finish the year below the $70pb mark.

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Here we are, saying thanks and goodbye to the excellent month of November for both bond and equity markets. US bonds rallied, and the bond yields melted starting from the end of October remember, and the melting bond yields offered to the S&P500 one of its biggest gains for a month of November.

The debate now is, will such a strong month of November spoil our Santa rally, or the US stock markets will continue to extend gains in December?

Good news is, inflation falls on both sides of the Atlantic, and energy prices look much less threatening given that Europeans reduced their exposure to Russia gas, and OPEC failed to deliver enough supply cuts to boost oil prices.

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The rally in US bonds continued at full speed yesterday and bonds are set to record their best month since the GFC this November. Although the US Q3 GDP was revised to an eye-popping 5.2% from an already high 4.9% printed earlier, investors focused on the Atlanta Fed’s GDP Now forecast which is now pointing at a sharp decline in the US GDP growth in the current quarter to around 2%. Note that a 2% growth in the US is still above average and shouldn’t be enough to convince the Fed to start cutting the rates too early if the slowdown in inflation remains insufficient. But if inflation slows, nothing will stop the bond traders from continuing to rush in.

Today, all eyes on the US PCE index – the Fed’s favourite gauge of inflation. The headline PCE may have eased from 3.4% to 3.0% in October, and core PCE is seen down from 3.7% to 3.5%.

In the FX, the rally in US bond markets, and the tumbling US yields weigh on the US dollar. The USDJPY extended its drop, whereas the EURUSD couldn’t extend gains above the 1.10 mark as inflation data from some Eurozone countries came sufficiently soft yesterday.

In energy, OPEC is expected to announce an eagerly expected decision regarding its supply strategy today. The barrel of US crude is back to $78pb, and ready to jump above the 200-DMA if Saudi Arabia obtains a joint effort from other members in reducing supply.

Fun fact: 70’000 people flew to Dubai this week to talk about how to cut carbon emissions. 70’000 people. Additionally, the fossil fuel industry has been invited to participate more than any other COP since the gatherings began in 1995.

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The US bonds extended their rally as one of the Federal Reserve’s (Fed) most hawkish members, Christopher Waller, said in a speech named ‘Something appears to be giving’ that he is ‘increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%’.

The US yields tumbled, gold rallied past the $2050 level, the EURUSD traded above the 1.10 psychological level, Cable surpasssed 1.27, and the USDJPY tipped a toe below the 147 level and below its 100-DMA.

Note that we have a few technical levels across currencies and commodities that are being tested as a result of a significant meltdown in the US yields and the RSI indicators across most asset classes are screaming that it’s time for correction.

Moving forward, have a look at the latest US GDP update today and at the latest European inflation updates between today and tomorrow.

On separate note, US crude rebounded past $76pb, but gains remain timid as the latest news suggest that Angola and Nigeria continue to resist to Saudi’s demand for a joint effort to reduce supply and that there is a chance that the OPEC meeting, which is rescheduled to tomorrow, could be delayed again.

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Monday morning’s rebound in US bond yields didn’t last long; the US sovereign bond yields fell as rapidly as they rose on Monday as a $55bn auction of 5-year US bonds saw strong demand after a weak sale of 2-year bond. The US dollar index extended losses and gold gained.

Crude oil however remained under selling pressure on uncertainty regarding whether Saudi could or could not come out with an impactful supply cut decision this week. Note that a deeper fall in oil prices could support a further bond rally, and a further USD depreciation.

Oil companies are also feeling the pinch of cheaper oil prices. Their short-term valuation depends on oil price action, while their long-term valuation could be impacted by the role that they will be given in energy transition. There is a louder chorus for including Big Oil in ESG funds. (Don’t blame me!)

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Last week ended on a positive note where the US equities advanced to fresh highs since summer on a holiday shortened trading week. The S&P500 gained for the 4th consecutive week and closed the week near 4560, the rate-sensitive and technology heavy Nasdaq 100 extended gains beyond the summer peak, and hit an almost 2-year high, while the VIX index, which is known as Wall Street’s fear gauge, or the volatility index, slumped to the lowest levels since January 2020. The belief that the Federal Reserve (Fed) is done hiking the interest rates, and the rapidly falling US long-term yields are at the source of this optimism – especially after the latest CPI update in the US printed a softer-than-expected number, suggesting that inflation in the US fell to 3.2% last month. This week, investors will find out if the Fed’s favourite inflation gauge, the PCE index, tells the same story.

Friday’s rebound in the US yields couldn’t give a bullish shift to the US dollar. The dollar index slipped below its 200-DMA, the EURUSD extend gains to 1.0950, Cable trades past the 1.26 level, while the USDJPY remains offered near the 50-DMA, near the 149 level.

Gold pulled out offers at the $2000 per ounce, while appetite in oil is nowhere to be found this morning despite news that OPEC+ is nearing a resolution of the disagreement on output quotas, which led to the group delaying a crucial meeting last weekend.

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