By Michael Brown, Senior Research Strategist at Pepperstone
DIGEST – Stocks shrugged off an early wobble yesterday, with dip buyers continuing to ‘rule the roost’, while Treasuries advanced across the curve, and the dollar rolled over again. UK GDP figures highlight today’s docket.
WHERE WE STAND – Festive markets, eh, how peculiar they can be at times.
I do very much get the vibe, at risk of talking my own book here, that the majority of market participants have now ‘checked out’ for the year. At least, conditions across the board now appear very thin indeed, with volumes noticeably lightening up, and nobody seeming to have especially much conviction to do anything new, with just one ‘proper’ week of the year left to go.
Against that backdrop, as I’ve said so many times this year, we tend to just see markets take the ‘path of least resistance’, which is arguably the best way to sum up yesterday’s trade – stocks recovering after an early wobble, buyers dominating in the FI space, the dollar rolling over once more, and precious metals continuing to charge higher.
To be clear, there wasn’t much by way of fresh catalysts for any of that. Fallout from Wednesday’s hawkish 25bp Fed cut continued, though swaps continue to fully price the next 25bp cut for June 2026, while also continuing to see terminal at about 3% late next year. Both of those being, as near as makes no difference, unchanged from where we stood before the final FOMC announcement of the year. Meanwhile, the wobble in tech stocks after Oracle’s earnings miss gave way to calmer tones as the day progressed, and dip buyers made themselves known once more, taking the S&P to a record close.
For what it’s worth, I remain an equity bull into year-end, especially with the majority of event risk – besides next week’s stale NFP & CPI prints – having been navigated, likely allowing FOMO/FOMU flows to take over, as a spate of portfolio ‘window dressing’ takes place, allowing a ‘Santa Rally’ to take hold, ably assisted by what remains a robust fundamental backdrop, and an increasingly loose monetary policy stance.
In a similar vein, now that the event risk of the FOMC is out of the way, dip buyers have continued to dominate across the Treasury complex, as participants seek to lock in yield, especially at the long-end, ahead of next week’s data releases.
Once again, as we saw on Wednesday, it then became a case of Treasuries driving everything else, and momentum rather running away from itself. Precious metals are a case in point here, with gold breaking north of key resistance at $4,250/oz, and silver printing fresh record highs at $64/oz, as both found their shine once more. I find it tough to build a structural bear case for either, even if the silver rally in particular is looking a bit squeezy right now, and would subsequently be a buyer on any dips.
The dollar, meanwhile, continued to face relatively stiff headwinds across the board, with the DXY now back under its 100-day moving average for the first time since early-October. The bears appear in control, here, for the time being, with the 98 figure now standing as key support to the downside.
LOOK AHEAD – There really isn’t much going on today.
On the data front, this morning’s UK GDP stats are set to show the economy having stagnated in October, largely as a result of pre-Budget uncertainty freezing business investment and consumer spending alike, though the monthly data remains very noisy indeed, with relatively little by way of signal able to be extracted from the report.
Besides that, focus will fall largely on Fedspeak, with scheduled remarks due from 2026 voters Hammack and Paulson, while dissenters Goolsbee, Schmid, and Miran will all likely issue statements explaining why they didn’t vote with the majority on Wednesday.
Elsewhere, all that’s left for me to do is to provide my usual warning about the potential for gapping risk on Monday if we get any unexpected news-flow, before we all indulge in a well earned festive beverage or three to see in the weekend.