Written by Stocks stay on the backfoot amid ongoing AI angst
Markets remained in a cautious mood on Tuesday after shares on Wall Street reversed earlier gains to end Monday’s session in the red. Tech stocks have been underperforming lately as growing concerns about an AI bubble have sparked a rotation into value stocks, diminishing the chances of a broad year-end Santa rally.
The latest scare came after the earnings of both Oracle and Broadcom highlighted the risks attached to the lofty earnings expectations. Oracle is financing its data centre expansion with debt, while Broadcom is facing a squeeze in margins. But as always, amid the selloff, there are some winners, with Tesla jumping 3.5% yesterday after the company said it has started to test its robotaxis without a safety driver.
Equities in Asia also haven’t had a good start to the week, with weak Chinese data weighing on sentiment. But European stocks have been a little chirpier during the last full trading week of the year.
Yen shines as BoJ hike eyed
The safe-haven yen has benefited somewhat from the downbeat tone but primarily, the Japanese currency is finally gaining some traction ahead of Friday’s expected rate hike by the Bank of Japan. Still, a 25-bps increase is only about 82% priced in so further gains are possible if the odds rise further in the coming days.
The yen’s rally is pressuring the dollar index, which is trading near two-month lows. But the greenback’s losses have been more modest against the euro and pound, while the Australian and New Zealand dollars have been declining since late last week.
Pound up on PMIs; aussie, kiwi and loonie slide
Receding risk appetite and weaker commodity prices have been a drag on the aussie, but for the kiwi, it is comments from newly appointed RBNZ Governor Anna Breman that financial conditions have tightened more than anticipated that hurt the currency, as investors pushed back the timing of the first rate increase in 2026.
The Canadian dollar, on the other hand, pulled back from three-month highs versus its US counterpart yesterday after Canadian CPI numbers came in slightly below expectations.
The euro held steady despite the Eurozone’s flash PMIs for December missing the forecasts, while UK PMIs beat expectations, helping sterling to climb back above $1.34 after earlier dipping on a mixed employment report that showed the jobless rate edging up yet again to 5.1% in the three months to October.
NFP to kick-off pre-Christmas US data flurry
Looking ahead to the US session, the focus will entirely be on the delayed payrolls report for November due at 13:30 GMT. The US economy likely added 50k jobs, less than the prior 119k. However, the risks are tilted to the downside given that the government was still in shutdown until the middle of the month and following the recent layoff announcements.
Retail sales numbers are also released today but may not attract much interest as they are for October and attention will quickly shift to Thursday’s CPI report.
At this stage, Wall Street traders are probably hoping for slightly softer data, as this would boost the odds of the Fed cutting rates more than the projected single 25-bps cut in 2026.
Bitcoin slumps again, oil under pressure, gold off highs
Doubts about how many times the Fed will be to able lower rates next year have been a significant headwind for cryptos lately, with AI jitters further exacerbating the selloff. Bitcoin has already slumped more than 5% this month and a year-end bounce back doesn’t seem likely. After failing to crack the significant resistant area of $94,000, Bitcoin is in danger of soon testing the $84,000 support region.
Meanwhile, gold’s latest upswing appears to have run out of steam, as the precious metal is back below $4,300 following Friday’s spike to near eight-week highs.
Crude oil prices are also declining, with WTI futures hitting the lowest since early May today. Growing signs that Ukraine and Russia are edging closer to a peace deal, potentially leading to an easing of Russian oil sanctions, are adding to existing oversupply concerns.
The latest talks in Germany produced a positive outcome on the key issue of security guarantees for Ukraine. But with WTI futures looking oversold, an immediate breach of the $55 level may not be on the cards.
By XM.com
