KCM Trade | Market Commentary | Tim Waterer | Sentiment Shifts from Pessimistic to Positive on Rates Outlook, Tech Sector
By Tim Waterer, Chief Market Analyst of KCM Trade & Forbes Advisor Australia Advisory Board Member
Over the past week, markets have done a U-turn with respect to both the chances of a December rate cut from the Fed and the profitability prospects for the tech sector. Dovish sentient expressed by Fed members Williams, Waller and Miren since late last week, combined with tame US retail sales and PPI data have served to swing the chances of a rate cut next month from down near 40% to back above 80%.
Meanwhile, hype over Google’s Gemini 3 AI model and Meta’s investment plans have contributed to tech-sector sentiment reversing course. The news around Google (which has sent parent company Alphabet higher) has helped to keep AI profitability worries at bay -worries that have been plaguing global stock indices for much of November. So, in essence the market mood has shifted from being pessimistic to positive regarding the outlook for interest rates and the tech sector. However, as we have seen this month, sentiment can shift wildly and at the drop of a hat, so more fluctuations on these two fronts may be in store. Particularly in the lead up to the FOMC meeting on 9-10th December. In FX, the softer batch of US macro data (retail sales and core PPI) and growing expectations of a December interest rate cut have dulled the Dollar’s performance. The Dollar Index (DXY) has slipped below the 100 level, due in part to the USDJPY rate pulling back from its recent highs. The USDJPY price has shifted down from a 157 handle to a 156 handle, with traders watching to see if any further rounds of yen weakness may attract intervention from the Japanese authorities to stabilise the yen. Growing expectations of a December rate cut from the Fed in combination with the Dollar’s price slip have made life a bit easier for the gold price. The precious metal is starting to look more surefooted once again in response to the evolving yield outlook. Spot gold currently trades around $4132 (as of mid-morning Asian trading hours on Wednesday) ahead of support at $4116, $4087 and $4042. Resistance awaits at $4165, $4290 and further out at $4237. In summary, the reshaped interest rate picture looks favourable for gold, but the uptick in risk appetite and potential Russia-Ukraine peace deal could cause safe-haven demand to abate.
Oil is another commodity which is closely watching what happens with regards to Russia-Ukraine peace deal discussions. While oil has found some support from expectations of a possible December interest rate cut from the Fed, the prospect of Russian oil re-entering the global market is capping the upside. For US crude, support awaits at $57.10, and resistance lies at $58.93. But where oil prices head from here in the short term really comes down to whether a peace deal concerning Russia-Ukraine emerges or not. If the talks fall apart without a resolution, oil prices could be expected to move higher. Looking ahead, the US Thanksgiving holiday (on Thursday) will probably sap the market of some liquidity in the second half of the week. Lower liquidity levels can sometimes exacerbate volatility levels in the market. On the data front, the Tokyo Core CPI reading (due Friday) could impact expectations for a potential BOJ (Bank of Japan) rate hike next month should we see a print north of the 2.7% rate expected.