US Retail Sales and the inflation data came in higher than expected last week, and the Federal Reserve (Fed) Chair Jerome Powell said that the US economy is strong enough and that there is no urge for rushing to rate cuts. The US 2-year yield consolidated between the 4.30 and 4.40% level, the 10-year yield shortly spiked to 4.50% and the US dollar index traded at the highest levels in more than a year. The US yields and the dollar are softer this morning. Yet activity on Fed funds futures still gives around 65% chance for a 25bp cut in December, hinting that there is room for a further hawkish adjustment for December bets. Even if the next jobs data disappoints, rising US inflation expectations will likely tame the expectation of further rate cuts. This is especially true with Trump’s pro-growth policies and hefty tariffs threatening to give an additional boost to inflationary pressures.
The week’s economic data is light, investors will find a window to digest and breath after hectic weeks since the US election. We could see consolidation and correction in both US treasuries and the dollar. The EURUSD, which tested the 1.05 psychological support last week, could recover from the oversold territory, and the USDJPY could form resistance near the 155 level, but the rising risk for US inflation will remain the key market narrative and should limit the appreciation potential of major peers against the US dollar.
In energy, investors repeatedly knock crude oil back down each time it tries to recover. The barrel of US crude tumbled more than 2% on Friday and tipped a toe below the $67pb level. Higher global supply versus weak demand outlook keeps the bears in charge of the market. The price rallies serve to strengthen the bearish positions in expectation of a deeper selloff to $65pb. A solid support is seen for Brent crude approaching the $70pb level. Unless the macroeconomic narrative changes to stronger China, and lower oil output (in case the geopolitical tensions escalate), the bears will likely dominate the field.
In equities, last week ended on a sour note. The European equities were already bearing the brunt of US tariff threats and the Stoxx 600 remained downbeat despite the rising dovish expectations for the ECB. But the major US indices were also hit by a selloff last week on the back of a hawkish shift in Fed expectations. The Dow Jones retreated 1.24% last week, the S&P500 slipped more than 2%, Nasdaq 100 dropped around 3.40% while Russell 2000 lost 4%.
This week, attention shifts from politics and economic data to earnings. Big names like Walmart, Target and, yes, Nvidia will be reporting their Q3 earnings this week. The big retailers will shed light on the health of U.S. consumers, while Nvidia is expected to deliver a strong beat and an upbeat outlook, fueled by ‘insane demand’ for its Blackwell chips. That said, with such high expectations already baked into its stock, surprising Nvidia investors is becoming increasingly challenging with each passing quarter.