November’s Risk-On Wave is More of a December Trickle…So Far At Least

November’s wave of risk-on momentum has turned into more ofa trickle so far in December. Some of this can be attributed to a natural reactionfollowing such a rampant run higher, while also there could be an element ofsecond-guessing regarding just how closely the market’s optimistic 2024 ratecutting expectations align with the intent of the Fed.  

Job openings data was weak overnight in the US; however,traders will be awaiting the ADP private payrolls data and Non-farm Payrollsfigures to see if labour market cooling is indeed the trend heading toyear-end. If so, a softening jobs market would reinforce hopes that the nextmove from the Fed will be down rather than up with respect to interest rates,irrespective of the more cautious messaging from the central bank itself.

The Moody’s downgrade of China (from Stable to Negative) hasso far proved to be only a minor hurdle for risk sentiment, with the news notentirely surprising in light of China’s well publicised property woes. Equitymarkets across Asia today took the downgrade in their stride with the majorbourses around the region registering gains.

The RBA decision to hold rates steady on Tuesday was awelcome development for Australian equities. Though with the central banklikely waiting to see how the Q4 inflation figures pan out, a potentialFebruary hike can’t be ruled out. The bank has in recent months abandoned itsuse of the phrase “low tolerance” regarding returning inflation to target,which perhaps does suggest that the RBA is less inclined to hike rates than wasthe case leading up to the November hike. This subtle change of posture is likelya reason behind the AUDUSD rate sliding 1% over the last few sessions.

Oil has been drifting lower, with the tepid results from theOPEC+ meeting still curtailing the price action. The announcement last week ofvoluntary cuts rather than multilateral action was a tamer outcome than hadbeen anticipated, with the likes of Saudi Arabia having a hard time convincingother member to take a more hardline stance on production cuts. Also hurtingoil is that all of the Isael-Hamas conflict risk premium has effectively beenremoved from the price, rightly or wrongly.

It's already been a week to remember for gold and it’s onlyWednesday. Having taken off on Monday to hit all-time highs, some sense of normalityhas resumed in respect of trading ranges. The spot price is trading around $100lower than Monday’s historic highs, with momentum currently being hindered by areturn to form of the USD.

The Dollar shrugged off disappointing JOLTS data and fallingtreasury yields to post gains against its rivals, in a move higher that appearsto be in response to the oversold conditions witnessed throughout the priormonth. Just how much further the greenback can continue to chip away atNovember’s 3% decline will depend upon whether the upcoming labour market datathis week reshapes the existing, optimistic interest rate expectations for2024.