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S&P 500 Wave Analysis
- S&P 500 broke round resistance level 6000.00
- Likely to rise to resistance level 6130.00
S&P 500 index continues to rise steadily after breaking the round resistance level 6000.00, which stopped the earlier upward impulse wave at the start of November.
The breakout of the resistance level 6000.00 accelerated the active minor impulse wave 3 of the intermediate impulse wave (3) from August.
Given the strong daily uptrend, S&P 500 index can be expected to rise in the active extended daily Wedge toward the next resistance level 6130.00, target price for the completion of the active impulse wave 3.
Silver Wave Analysis
- Silver reversed from round support level 30.00
- Likely to rise to resistance level 32.00
Silver recently reversed up from the round support level 30.00, which has stopped all previous downward corrections from September.
The support level 30.00 was strengthened by the lower daily Bollinger Band and by the 61.8% Fibonacci correction of the sharp upward impulse from August.
Given the clear daily uptrend, Silver can be expected to rise further to the next resistance level 32.00, former top of the minor correction from the start of November.
Fed’s Powell: Economy stronger than expected, allows cautious rate cuts
Fed Chair Jerome Powell expressed optimism about the US economy during an event overnight, stating it is in "very good shape" with "no reason for that not to continue." He highlighted reduced downside risks in the labor market, stronger-than-expected growth, and inflation running slightly higher than previously anticipated.
Given these developments, Powell suggested the Fed could "afford to be a little more cautious" in its approach to cutting interest rates as it works toward a neutral policy stance.
Reflecting on Fed's 50bos cut in September, Powell noted it was intended as "a strong signal" of support for a potentially weakening labor market. However, subsequent data revisions revealed that the economy was "even stronger than we thought".
Fed’s Musalem signals potential pause in rate cuts
Speaking at an event today, St. Louis Fed President Alberto Musalem emphasized the importance of maintaining "policy optionality" as the central bank assesses the evolving economic environment.
He noted that the "time may be approaching to consider slowing the pace of interest rate reductions, or pausing" altogether to evaluate incoming data and the economic outlook more carefully.
BUT, Musalem refrained from committing to a specific timeline, saying, “It might be December, it might be January. Could be later.”
He highlighted the significance of upcoming economic reports, including inflation, retail sales, and the crucial November jobs data due on Friday, in shaping his stance ahead of the Fed’s next policy decision.
“I’m going to wait until I see that data, until I can be assured in which way I’m leaning,” he stated.
Will Nonfarm Payrolls Determine Dollar’s Fate?
- Dollar elevated even as Fed leaning towards December cut
- Investors still see strong chance for a January pause
- Strong jobs numbers could add fuel to dollar’s engines
- The data comes out on Friday at 13:30 GMT
Investors are still expecting a Fed pause in January
The US dollar recharged this week, confirming the notion that last week’s pullback may have been the result of traders realizing some profits on their long positions ahead of the Thanksgiving break.
Although some Fed officials appeared to be favoring another rate cut in December, market participants continued to believe that the Fed may need to take the sidelines at the turn of the year, assigning a stronger chance of that happening in January. According to Fed funds futures, there is a 60% chance for a pause at the first FOMC gathering of 2025.
After threatening Canada, Mexico and China with hefty tariffs, US President-elect Donald Trump warned that he will impose 100% tariffs on BRICS nations if they were to move away from the dollar and create their own currency. Trump’s tariff pledges and his promises for massive corporate tax cuts are seen as inflationary policies, which alongside the better-than-expected data out of the US have allowed investors to continue speculating on a slow rate-cut process by the Fed. And that is the case even though several policymakers, including the usual hawk Neel Kashkari, are inclined to push the cut button in December.
Jobs growth seen rebounding strongly
This week, Friday’s employment data may attract special attention, especially following the very weak 12k jobs gain in October. Although the low print was attributed to labor strikes and hurricanes, a strong rebound may be needed for investors to remain confident on the dollar uptrend.
The forecasts suggest that the economy has gained 202k jobs in November, but the unemployment rate is expected to have increased to 4.2% from 4.1%. Nonetheless, that’s not necessarily a bad thing if it is accompanied by a rising participation rate, as it could be a sign of more unemployed people entering the labor force and being encouraged to actively start looking for a job. Average hourly earnings are expected to have slowed but only fractionally, to 3.9% y/y from 4.0%, which means that inflation could remain somewhat sticky in the months to come.
Such numbers are likely to encourage investors to add to their bets about a potential pause at the turn of the year, and even increase the probability of the Fed remaining sidelined at both the December and January gatherings. That probability currently rests at a respectful 23%.
Euro/dollar may be poised to drift further south
With the euro feeling the heat of the uncertainty surrounding French politics, euro/dollar may be vulnerable to drift further south if the US data add more fuel to the dollar’s engines.
The bears may feel confident to take the action down to the low of November 22 at 1.0330, or towards the 1.0290 barrier, marked by the low of November 21, 2022. If they are not willing to stop there, a break lower could carry larger bearish implications, paving the way towards the inside swing high of November 11, 2022, at around 1.0100.
For the outlook to start looking brighter, a rebound above the key pivot area of 1.0665 may be needed. Such a move could encourage advances towards the 1.0765 zone, marked by the inside swing lows of October 23 and 29, the break of which could trigger extensions towards the high of November 7 at 1.0825.
ADP Reaffirms Picture of a Healthy US Labour Market
The most important publication in the coming weeks will be Friday’s US employment report. Ahead of that, we are turning our attention to other labour market indicators. Wednesday’s ADP private sector employment report is the closest we have to a data release, although it has given many false signals in recent months.
The data released was slightly weaker than forecast, with an increase of 146K versus the expected 152K. This level of forecast accuracy is quite rare for such statistics. These figures reflect a relatively healthy development in employment but should be taken with a degree of caution. A month earlier, employment growth was reported at 233K, but today, these figures were revised down to 184K. The official Bureau of Labor Statistics showed a decline of 28K in November. The huge discrepancy and the impressive revision downgrade in today’s release still form a positive backdrop, as the cumulative totals for the last three months (+163K/month) show an acceleration from the previous three months.
The only cause for concern is the 26K drop in industrial employment, which was the only sector to show negative momentum last month. This is in line with a similar trend in the official BLS data in recent months.
Among other data, we also look at the job vacancy rate, where the latest October data was the highest in three months. An even more important indicator was the manufacturing ISM, which rose from 46.5 to 48.4, indicating a less severe contraction than before.
All these data support the view that the US economy remains on a growth path. They allay fears of a new wave of inflation, allowing the Fed to cut rates further without fear of overheating the market. At the same time, this is a fairly strong set of data, leaving the potential for further buying in the equity market. Of course, this all assumes that the new incoming data (Trump administration initiatives and the employment and inflation report) remain within current expectations.
US: ISM Services Index Tumbles to Lowest Print Since June, But Still Points to Growth
The ISM Services index fell 3.9 points to 52.1 in November, well short of the 55.7 consensus expectations. Fourteen industries out of eighteen reported growth, the same as in October.
Broad based weakness across component sub-indexes weighed on the headline measure. Business activity and new orders both suggested ongoing growth (53.7) despite falling 3.5 and 3.7 percentage points, respectively.
The employment sub-index suggested a slower expansion of payrolls, falling 1.5 points to 51.5. November marks the fifth month this year that services sector employers reported growing headcounts.
The prices paid sub-component was virtually unchanged (58.2 vs 58.1 in October), while supplier deliveries times rapidly shrank, tumbling 6.9 points to 49.5, signaling faster delivery times for the first time since August.
Key Implications
On the face of it, this month's ISM services print is a bit of a surprise, but the details still show robust growth across components. In particular, the employment indicator, which had spent much of the year below the 50 mark, held in expansion territory despite the pullback in activity and new orders growth.
This report was softer than expected, but with the details still pointing to expansion, and 14 of 18 industries reporting growth, the services sector looks to be in good shape. If anything, the strong underlying data gives a sense that the November slip-up could be reversed shortly, much the same way that last December's weak print was quickly reversed in January.
Sunset Market Commentary
Markets
Bank of England governor Bailey, ECB president Lagarde and Fed chair Powell today all grab(bed) their final occasion to guide market expectations going into final policy meetings of the year, which for the ECB and the Fed include updated growth and inflation forecasts. BoE Bailey spoke at the Financial Times’ Global Boardroom conference. Headlines suggested that he expects four UK rate cuts next year as inflation eases. In a detailed reading, we think this guidance is more nuanced with Bailey referring to market expectations in the November economic forecast: “We always condition what we publish in terms of the projection on market rates, and so as you rightly say, that was effectively the view the market had.” At that November meeting, the BoE worked with three scenario’s. Apart from the central one, they used one with a faster disinflationary process and one with a less encouraging inflation outlook. Bailey did acknowledge that even in the central view, the BoE would have to lean in a bit harder to keep inflation on a sustainable path towards the 2% target. UK assets initially reacted on the “misleading” headlines, pushing UK yields and GBP lower. The move didn’t last and even rapidly ran on a counter. UK gilts slightly underperform US Treasuries and German Bunds. UK yields currently add around 5 bps across the curve with UK money markets discounting a rate cut skip at the December meeting and a 25 bps rate cut in February. EUR/GBP is again exploring the recent lows near 0.8275 with geopolitics adding a tad of euro weakness after the crew of a Russian ship in the Baltic Sea shot signal ammunition at a German military helicopter.
ECB president Lagarde appeared before a Committee on Economic and Monetary Affairs at the European Parliament. She sounded worried on the short term economic outlook, but expects the recovery to gather some steam further on. Inflation is temporary higher in Q4 but should hit the 2% target in the course of next year. While the target is in sight, it hasn’t been fully reached she added. She didn’t comment on the outcome of the December meeting, but she definitely didn’t push to speed up the policy normalization. We stick to the view that 25 bps rate cuts remain the way forward, in contrasts to EMU money markets discounting at least one 50 bps rate cut at one of the next three ECB meetings. In a broader context, Lagarde endorses ECB chief economist Lane’s recent proposal to base decision making again with a forward looking view rather than sticking with the backward looking data dependency which prompted the surprise October rate cut. Finally, Lagarde confirmed that it’s premature to start discussing the optimal size of the balance sheet, implying that the current run-off could easily continue for at least another 12 months.
Fed Chair Powell only addresses media after today’s European close. Our base scenario is a 25 bps rate cut in December with a potential pause in January on the back of better eco data and awaiting Trump’s agenda. In the meantime, EUR/USD continues drifting south and back below 1.05. November ADP employment growth was near consensus at 146k, but came with a significant downward revision of the October number, from 233k to 184k. The US non-manufacturing ISM is also still scheduled for release in between finishing this report and Powell’s speech.
News & Views
The OECD expects the global economy to grow at 3.3% next year. That’s slightly faster than the 3.2% projected for this year, which was also penciled in for 2025 in earlier estimates. The upgrade came on the account of the US, which the Paris-based organization anticipates to expand a lofty 2.4% vs 1.6% in May. OECD’s Pereira warned, however, that these forecasts assume no change in trade policies, adding that risks to the outlook are increasing from trade tensions and protectionism. French and German growth was cut to 0.9% and 0.7% respectively as political uncertainty lingers and fiscal pressure mounts while the EMU’s figure was lowered to 1.3%. Widening budget deficits are among the key worries for the OECD. It expects that all but the most indebted members of the G7 (Italy and Japan) will continue to increase borrowing as a percentage of GDP. For the OECD as whole, debt to GDP would rise to 117% by end 2026%. Pereira urges governments to “seize this opportune moment” to fix public finances. It warned the UK on the matter, saying that its fiscal stance is unsustainable without additional tax increases. Its large government deficits will keep pushing up debt to 106.2% of GDP in 2026. UK growth is forecasted to come in at 1.7%, up from a previous 1.2% estimate. The institution cautioned central banks to go tread carefully with rate cuts, citing persistent services inflation. The ECB rate should bottom around 2% end 2025 & the Fed’s around 3.25-3.5% in early 2026.
US ISM services drops sharply to 52.1 in Nov, signals slower growth
US ISM Services PMI slipped significantly to 52.1 in November, down from October’s robust 56.0 and missing market expectations of 55.5. This marks a sharp deceleration in the service sector, which has been a key driver of economic resilience.
Key components of the report painted a picture of slower activity across the board. Business activity/production fell from 57.2 to 53.7, while new orders mirrored this decline, dropping to 53.7 from 57.4. Employment growth also softened, with the employment index easing from 53.0 to 51.5, indicating reduced hiring momentum. Prices index ticked up slightly, rising to 58.2 from 58.1, suggesting persistent cost pressures within the sector.
According to ISM, the current PMI reading corresponds to an estimated 1% annualized increase in real GDP. This suggests that while the services sector remains in expansion territory, its contribution to broader economic growth has slowed markedly.
