Stocks Rotate As Catalysts Lacking

WHERE WE STAND – A day lacking in obvious catalysts to kick-off the new trading week, yesterday, with both data- and news-flow relatively light, seeing markets once more take the path of least resistance, as the so-called ‘Trump Trade’ rolled on.

As such, stocks traded in a firm manner, with notable outperformance among the value and cyclical areas of the market, well evidenced by the strength in the Russell 2000, which ended the day 1.5% higher. The broader S&P, meanwhile, notched modest gain of 0.1% on the day, and closed at its 51^st all-time high of 2024, closing north of 6,000 for the first time.

The rotation out of tech did catch the eye, though, with the Nasdaq ending proceedings in the red, though it feels far too soon to be considering any long small caps/short tech spread trades at this moment in time – Nvidia earnings next week could change the narrative here, though.

Without wishing to sound like a ‘broken record’, I still have full faith in the bull case for equities, particularly with the incoming Trump Administration likely to provide a further fillip to economic growth, and corporate earnings, via a renewed round of tax cuts. Amid cleaner post-election positioning, the recipe for broad-based equity gains into year-end seems a potent one.

Meanwhile, in the FX space, it was another day of relatively broad-based USD gains, with the DXY adding over 0.5%, trading to fresh highs since early-July, north of 105.50. The ‘US exceptionalism’ them looks like it still has plenty left in the tank, with the buck likely to drift higher for the time being, at least until Friday’s all-important retail sales report. That said, the late-June/early-July highs around the 106 handle could be a level at which some bulls seek to take profits off the table.

Other G10s continue to soften, with yesterday seeing the EUR sink to the bottom of the pile, as the common currency tumbled to its lowest level since April. Even setting aside the vast outperformance of the US economy, the EUR has little going for it, particularly with Germany on the verge of political tumult, the Chinese economy still stuck in the doldrums, and geopolitical tensions continuing to linger. A dovish ECB outlook, per market pricing of 100bp of cuts by March, hence seems justified, with Lagarde & Co. one of the most likely candidates among G10 central banks to pull the trigger on a 50bp cut, if any were to do so.

The stronger greenback also proved bad news for goldbugs, with the yellow metal falling almost 3% on the day, testing $2,600/oz to the downside. Gold bulls are, very quickly, finding out that momentum works in exactly the same way on the way down as it does on the way up – perhaps even more aggressively, given that the rally in question had little by way of fundamental catalyst behind it.

Still, a combination of a stronger buck, and softer Treasuries – futures, with cash trade closed for Veterans Day – was a toxic mix for gold, and looks likely to remain so, particularly after yesterday saw the first close below the 50-day moving average since early-July. A break below $2,600/oz could now precipitate further selling pressure.

LOOK AHEAD – A busier docket awaits today.

On the data front, this morning’s UK jobs figures are the highlight, though the data continues to come with a ‘health warning’ given the ONS’ continued inability to produce an accurate assessment of UK employment conditions. That said, unemployment is seen rising 0.1pp to 4.1% in the three months to September, while overall earnings growth should hold roughly steady, at 3.9% YoY over the same period. The report’s policy implications, though, are likely to be almost non-existent.

Elsewhere, today, the latest German ZEW sentiment surveys are due, with the figures likely to be depressed by ongoing political uncertainty, as snap elections loom early next year. The Fed, meanwhile, release the quarterly SLOOS survey, which could show credit conditions beginning to ease, as September’s 50bp cut begins to feed through into the economy at large.

Speaking of the Fed, four FOMC members speak today, including Governor Waller, often though of as one of the most influential on the Committee. An inordinate amount of ECB policymakers will also be on the wires, as will BoE Chief Economist Pill, who was among those in favour of last week’s 25bp Bank Rate cut.