Last week ended on a very positive note for the US equity markets. All major indices rallied, the S&P500 notched its best week in more than a year and toped the 6000 level for the first time in history. The Dow Jones traded past the 44’000 level for the first time as well, while Nasdaq 100 closed above 21’100, and small caps approached at ATH, despite some investors pessimism that the Trump-fuelled US yields could backfire on small caps as they have smaller margin to shoulder higher-than-otherwise borrowing costs. And indeed, the Minneapolis Federal Reserve (Fed) President Neel Kashkari said that the bank could lower the rates less than previously anticipated, but he rather pointed at the strength of the US economy rather than Trump policies. He said that it’s too early to determine the impact of what’s to come in terms of Trump policies. If the new President favours tax cuts over tariffs, the US equities could continue to surf on a wave of optimism, while focusing on tariffs before tax cuts would brush off a part of the present optimism.

For now, optimism prevails. During the weekend, the Trump optimism continued to show in Bitcoin prices. The price of a coin spiked past the $81’000 level, and the next natural target on the grill is the $100’000 psychological level.

That’s the American leg of the story: the picture remains bullish for the US equities. Elsewhere, worries mount: FTSE 100 and the European Stoxx 600 index both closed last week below the 200-DMA on worries about a heated international trade environment and the Chinese leg of the story is much less dreamy, too. China announced that it will deploy 10 trillion yuan to refinance local government debt, as expected by investors. Alas, the announcement failed to revive optimism as many were hoping to see bigger measures deployed in response to Trump presidency – who is now expected to increase tariffs on Chinese goods to 60%. As such, the big banks are back to cutting their growth forecasts for China. Standard Chartered and Macquarie expect the increased US tariffs to shave 2 percentage points off annual growth. While UBS trimmed its growth forecast from 4.5% to 4%.

The data released during the weekend wasn’t encouraging, either. Consumer inflation in China came in line with expectations, but deflation in producer prices unexpectedly accelerated last month to -2.9% on a yearly basis, and came as a mixed signal on the impact of the stimulus measures on the Chinese economy. As such, the CSI 300 bounced lower on Friday and erased a part of last week’s gains that were built on optimism that the Chinese stimulus measures would – this time – please.

And crude oil is under a renewed pressure since Friday, on China’s failure to wet investors’ appetite with fiscal stimulus measures. The barrel of US crude is back testing the $70pb support to the downside, having erased past week gains that were supported by geopolitical worries and hints that OPEC would delay the end of its production restrictions by at least a month. Iron ore is also under pressure, the spot price slipped below the 100-DMA and the latter weighs on the Aussie.

Elsewhere, in the FX, the US dollar index remains bid on rising uncertainties regarding the Fed’s easing path. For now, the markets still expect the Fed to deliver another 25bp cut before the year ends, but that probability fell from above 70% to below 65%. The data – especially the inflation data – will gain importance moving forward as Trump policies – the tax cuts and tariffs – are inflationary and will certainly limit the Fed’s capacity to ease wholeheartedly. This week, investors will focus on the next US CPI update, due Wednesday. The headline inflation is seen steady at 2.4% and core inflation unchanged at 3.3%. Higher-than-expected figures could further awaken the Fed hawks and support the dollar bulls against major peers.

Speaking of major peers, the EURUSD is testing the 1.07 support to the downside. The Trump’s tariff threat on European imports has become one of the major drivers here as well, combined with the troubled French finances and the chatter of early election in Germany. A further retreat is on the cards, unless we see a surprise easing in US inflation. Across the Channel, Cable consolidates below the 1.30 level. The Bank of England’s (BoE) less dovish stance after the UK budget is countered by a broad-based dollar strength, yet sentiment in EURGBP reflects well the divergence between more dovish ECB expectations and less dovish BoE expectations. And the latter points at a possible and a sustainable advance in EURGBP to 0.80/0.82 area.

Crude Oil

The price of a barrel of crude oil has fallen 1.6% since the start of Monday, bringing the decline over the last two trading sessions to 4%. Pressures on the oil price include signals from the ceasefire talks between Israel and Lebanon (reducing supply risks) and disappointment over the size of China’s stimulus package (revising expected demand).

Among the longer-term factors, the upward trend in US oil inventories has continued. The strategic reserve has increased by 1.4 million barrels, maintaining the pace in recent weeks and accelerating from the average rate of 750k barrels per week since the beginning of the year. The acceleration appears to be driven by lower prices, which also help to provide soft support.

Commercial inventories have been on an upward trend since the end of September, with oil producers adding at a record pace of 13.5 mb/d over the past four weeks. However, the current level of commercial inventories (427.7 mb/d) is at the lower end of the range of the past 5 years, and this factor is unlikely to seriously worry the markets as long as inventories remain below 500 mb/d.

The markets expect the Republican party’s political dominance to favour oil producers. However, we doubt this will lead to an increase in production. Instead, the focus will be on optimising profits (with equal emphasis on price and volume) and reducing subsidies for alternative energy sources.

A Republican administration may step up purchases of oil reserves after January, but that’s still more than two months away.

Technically, oil continues to be dominated by the bears, with a sharp reversal below the 50-week moving average in early October and trading near the lower end of its range over the past three years. The price also closed below its 50-day moving average last week and is now actively declining after falling below $69/bbl WTI. We will be watching the price dynamics and OPEC+ comments with interest in the event of a pullback to $65-66, as this would take Brent back to $70-71, which looks like an informal floor for the major cartel members.

Natural Gas

On Monday, the US Natural Gas price rose more than 5% since the start of the day due to the temporary shutdown of 16% of gas production capacity in the Gulf of Mexico.

This doesn’t seem to be a problem for the US now, with the latest data showing the highest gas inventories in 4 years and close to historical highs for the index.

The price has returned to the $3.0 area – highs in just under two weeks. The $3.0-$3.20 area has acted as pivot resistance more than once this year, and it will be interesting to see if this pattern continues. Given the inventory levels and dynamics of oil, a new downtrend is more likely for now. In the case of gas, however, a break of resistance could trigger a dramatic rise.

Stock Market Volatility

Bond Market and Interest Rates

Real Estate Sector

Commodities

Risk Aversion and Selling Pressures

Flight to Quality

Dividend Stocks and Defensive Investments

Diversification

Focus on Quality and Defensive Stocks

Consider Bonds and Fixed Income Assets

Avoid Emotional Decisions

Key Offerings and Timeline

A bar chart showing the monthly change in U.S. CPI inflation from Jan. to Sept. 2024 with a forecast for Oct. 2024.

China property sector slump

This bar chart shows Germany's quarterly GDP (seasonally and calendar-adjusted) from 2019 Q1 to 2024 Q3 with some annotations about related global situations.

Chart shows the progress of G20 nations in reaching their individual commitments to reducing carbon emissions under the Paris Agreement by 2030.

The line chart shows the public sector borrowing as a share of the GDP for UK and Oct. 2024 and March 2024 forecasts.

Source: Reuters