South Korea bounces

US stock indices began the new month on the back foot, following last week’s five-day win streak. Small caps and old school blue chips led the declines, as the Russell 2000 and Dow Jones fell 1.3% and 0.9% respectively. The S&P 500 lost 0.5% while the NASDAQ dropped 0.4%.

Source: TN Trader

The yield on the 10-year Treasury Note jumped around 7 basis points, in a sharp move which wiped out all of last week’s fall. Risk sentiment got a big boost at the end of November as the probabilities of a 25-basis point rate cut next week soared.

But Fed members made it clear that the dovish shift was a response to concerns over weakness in the labour market trumping inflation fears. This is despite the latest data (which has been sporadic due to the government shutdown) indicating that inflation remains well above the Fed’s 2% target.

Collectively, the Fed seems certain that inflation, while still high, has peaked. The market appears to disagree. The latest Core PCE update was released on Friday. This is the Fed’s preferred inflation measure and came in at +2.9% in August – the last update available. Not only was this the highest reading since February, but it has also been trending upwards since April.

In the meantime, there’s still uncertainty surrounding the Artificial General Intelligence (AGI) trade. The tech-heavy NASDAQ was down around 8% at its lowest point in November. Despite a strong rally last week on rate cut hopes, it still ended the month down 1.5%.

Yet it is Nvidia, the chip designer at the forefront of the AGI trade, that really had the worst of last month. On Thursday, it was down 19% from its all-time closing high at the end of October. It has rallied since and was one of yesterday’s biggest winners. But it is still down 14% from its record close and is now retesting $180 as resistance. The thing is that what began in early November as a concern over the likely return on investment in artificial intelligence has now morphed into picking winners and losers.

Last week, it was all about competition when it was revealed that Alphabet was talking to Meta about offering the latter its in-house TPUs for Meta’s data centres, thereby threatening Nvidia’s near-monopoly. US stock index futures were weaker in early trade, but pushed back into positive territory as the afternoon approached.

European stock indices tracked US stock index futures throughout the morning. Having been weaker first thing, equity prices found a bid as the US futures pushed higher. UK banking stocks got a boost after they all passed the Bank of England’s stress tests.

Source: TN Trader

The Bank also reduced its forecast for the size of the capital buffer needed to ensure the banking system’s safety. This was the first time in ten years that the buffer has been reduced.

Meanwhile, the Bank has not committed to cutting rates in December, though many economists now see easing as increasingly likely given cooling inflation, disinflationary signals from the Autumn Budget, soft growth and weakening labour trends.

Forex activity was relatively subdued this morning, particularly in the biggest currency pairing, the EUR/USD. The trading range was just 18 ticks wide, demonstrating how stuck and indecisive markets are at present. The Dollar Index was a touch firmer, while sterling pulled back sharply from highs made yesterday against the dollar. But overall, currencies seemed mired in a holding pattern, with no clear overall direction.

Source: TN Trader

The Japanese yen was weaker overnight, giving back all of yesterday’s gains. The USD/JPY bounced back to retest resistance around 156.00. On Monday, the yen rallied against the dollar with the USDJPY dropping to 154.66 at one stage, its weakest level in over a fortnight.

The Bank of Japan is still expected to raise rates again later this month, and yesterday the yield on the 10-year Japanese Government Bond hit 1.88%, its highest level in over seventeen years. It has pulled back a touch since, following a successful bond auction overnight.

Gold fell sharply overnight during the Asian Pacific trade, and the selling continued into the European session. As midmorning approached, gold had broken back below $4,200, a level that had acted as resistance in the second week of November.

Yesterday, gold hit $4,265 – its highest level since 21st October, when prices slumped from fresh all-time highs. Gold went on a break below $3,900 a week later and then put in a short period of consolidation. Prices took off to the upside again, and it looked as if $4,000 was acting as decent support while resistance came in at $4,200.

Last week’s small break above resistance, followed by yesterday’s early strength, looked as if gold had finally broken out to the upside. Could the overnight weakness simply be some ‘back and fill’ before prices head higher? Sure. The daily MACD remains subdued, but above neutral. Traders will be keeping a close eye on $4,200 to see if there’s a significant break in either direction.

Source: TN Trader

There’s certainly been a recent pick-up in gold’s volatility. But bear a thought for silver traders where, typically, the precious metal is living up to its reputation as gold’s unruly sibling.

In the middle of last month, silver steadied around $50 per ounce before it shot north to register a fresh all-time high yesterday of $58.84. This represented a gain of 18% in a week. It dropped sharply this morning, pulling back towards $56.50, although it consequently managed to steady somewhat above $57 per ounce.

Much of these gains came during thin, Thanksgiving markets. So, silver can expect to be tested further this week, so see just how solid, or otherwise, its recent gains prove to be.

Source: TN Trader

Oil slipped marginally overnight after a positive session on Monday. Front-month WTI rallied towards $60 per barrel yesterday after OPEC+ confirmed on Sunday that it will maintain its output pause through the first quarter of 2026. This has helped to remove some of the downside pressure on prices as investors consider an increased supply glut throughout next year.

Source: TN Trader

Meanwhile, President Trump’s Special Envoy, Steve Witkoff, is in Moscow and due to meet President Putin to discuss an updated peace plan to end the war with Ukraine. Over the weekend, a Ukrainian drone strike on the Caspian Pipeline Consortium’s Black Sea terminal disrupted operations at one of the region’s key mooring points.

Simultaneously, the growing political friction between the US and Venezuela remains a wild card. Washington’s warnings around Venezuelan airspace, coupled with a visible military buildup, have raised fears of an escalation in hostilities. 

Gas prices continued their ascent, in a move which has seen them attempt to break above an area of resistance which has been building since mid-November.

The move follows a period of persistent strength as long-side positioning builds, and the price action suggests traders are becoming increasingly confident in the current upward trajectory. The push higher has been steady rather than explosive. The bulls appear to have the 5 BTU target for the January futures contract in sight.

Crypto assets clawed back only marginal ground overnight following Monday’s steep declines. Just over a week ago, Bitcoin fell towards $80,000 to hit its lowest level since April.

So far, this appears to represent near-term support. But traders are wary of stepping in on the buy-side, on concerns that over-leveraged investors may still need to cut back their long side exposure.

The VIX held steady in early trade this morning, reflecting a market that is cautious but not yet signalling any significant escalation in fear. Despite Monday’s weakness in equities and ongoing concerns around valuations, inflation and the broader risk backdrop, volatility has remained surprisingly contained.

The reading suggests traders are still willing to give the bull case the benefit of the doubt, even as crypto turbulence, shifting rate expectations, and softer macro data continue to unsettle sentiment. For now, volatility sits in a holding pattern and is elevated enough to signal unease, but not high enough to indicate panic.

The bears landed a modest win yesterday as the ISM print rekindled concerns about the US economy. Next week’s Fed meeting now carries an 85% probability of a 25-bps cut, a backdrop that historically favours the bulls as December gets underway.

History supports the bullish argument going into year-end. But after such a volatile November, traders may need to pause and reassess before deciding whether to increase their risk exposure or not.