Market Insights: Equity Gains, Gold Strength, and Crypto's Next Move

The equity bulls will claim victory on the day, but the moves remain unconvincing, with the intraday tape seen in the US cash indices offering limited conviction, with the buyers lacking the impetus to chase this early session rally higher. Notably, the S&P500 cash traded to a high of 5908, but better supply then kicked in, with big open interest in 0 DTE S&P500 options at the 5900 strikes also offering a barrier – subsequently, the S&P500 saw choppy price action into the close.

Equity breadth and participation were positive, with 64% of S&P500 companies closing higher on the day, with energy, communication services, and staples working. Tech and financials closed +0.2% (as a sector) and without the leadership from these sectors, the S&P500 has been well anchored.

On a cross-asset basis, we see crude rallying firmly off recent range lows, with headlines from the Middle East and Ukraine prompting a concentrated short position to part cover. Gold (+1.9%) has also found a better tone on these same headlines and offered an additional tailwind from a weaker USD and a decline in US real rates.

Certainly, the 3% rally in crude has been well traded, with a mix of organic longs worked off the range low of $70.72 (Brent futures), and shorts covering from an extended position. We also see solid buying in gasoline, and Nat Gas, with the full energy complex rising on the strongly on the day. Whether this move builds is debatable, as the demand/supply equation in the oil market is still shaky and we see that dynamic in the crude futures curve, with WTI crude front-month futures close to inverting against the 2nd-month futures.

With limited US economic data to react to, bond traders have eased back on short exposures, with modest buying interest seen across the US Treasury curve, with yields across the different maturities some 2 to 3 bp lower. A further lift in inflation expectations (breakevens) sees US 5-year real rates decline by 5bp - a factor that would be welcomed by equity traders, and a signal for USD longs to ease back on longs.

The exception to USD weakness is USDJPY, which sits 0.2% higher on the day, although the intraday tape highlights a whippy ride, with better sellers kicking in on the move into 155.35. Elsewhere, it’s the higher beta commodity (and pro-cyclical) FX plays which have found form, with the ZAR, BRL, NOK, CLP, NOK, and AUD moving to the upside vs the USD.

The crypto scene is on the move once again, and requires monitoring, with some big moves playing out in the smaller coins (Tezos +50%, Polkadot +10%, XLM +18%). News that Trump Media may be making a play for Crypto firm Bakkt is doing the rounds and would be another piece of positive news that is lifting sentiment to the crypto scene. Technically, Bitcoin looks the goods though, and having seen price consolidate at ATHs, a potential upside break of $92k is there for chasing, as strength bets strength, and where an upside break could well be the trigger for a run into $100k.

Turning to Asia, as the various equity markets absorb the leads from the S&P500, commodities, the USD, and rates, early signs show that the major bourses should open on the front foot. HK will lead us higher, with the HK50 index bouncing off the 61.8 fibo of the former Sept-Oct rally – we’ll see if this platform can build, where a further intraday rally through trade today would likely lift the ASX200 and S&P500 futures.

By way of event risk for the session ahead, we get the RBA Nov meeting minutes, which shouldn’t be a volatility event for the AUD, with the AUD likely taking its steer from China/HK equity markets and USDCNH. We also see Canada’s CPI on the docket, and with CAD swaps pricing 35bp of cuts for the next BoC meeting (11 Dec), today’s inflation data could influence that implied pricing and subsequently move the dial on USDCAD and the CAD cross rates.

Good luck to all.