Equity Markets and Economic Indicators

Equity markets are building bases above the 200-DMA after bouncing back from the lows they hit last. S&P 500 earnings per share (EPS) growth rates are undergoing revisions, reflecting the Federal Reserve’s (FOMC) policy stance and concerns about a gradually weakening labor market. The recent negative EPS revisions are contextualized as a consequence of the FOMC’s hold, emphasizing the importance of monitoring high-yield credit spreads for potential economic downturn signals.

Upcoming Economic Data

This week brings crucial economic data, including October Consumer Price Index (CPI), Producer Price Index (PPI) and retail sales. A late-week rebound in Treasury yields may prompt the Fed to consider rate hikes, adding to market unease. San Francisco Fed President Mary Daly’s remarks echo Fed Chair Jerome Powell’s cautious stance, indicating the ongoing uncertainty in the interest rate landscape. Traders are currently betting on the Federal Reserve abstaining from further interest rate hikes.

Energy dynamics

Last week Oil prices seemed to form a low beneath $76 a barrel. The Saudi-Russia-led OPEC+ alliance, set to meet on November 26, might influence a tighter supply outlook. However, current data reveals rising OPEC+ exports, accompanied by a significant decline in speculative oil buying. The market sentiment suggests a shift from concerns about global oil supply to a historic short position, driven by macroeconomic fears rather than supply-demand fundamentals.

Outlook for Gold

Gold’s futures contract, particularly the December contract on Comex, experienced a final trade at $1,942.70 per ounce, closing the session at $1,937.70. Last week witnessed a 3.1% decline, adding to the previous week’s drop post-rejection from the $2,010 high. Spot gold is on a corrective path and is expected to drift lower.

Market Sentiment Amid Fed Policy and Geopolitical Tensions

Persistent geopolitical tensions, particularly in the Middle East, are still a cause for investor apprehension. The Israeli-Hamas conflict adds a layer of unease, heightening investor concerns about escalating geopolitical risks in financial markets. The potential involvement of other countries, notably Iran, keeps investors vigilant. As long as the conflict remains localized, investors are closely monitoring developments, ready to act with caution and a predisposition toward selling assets.

The dynamics in equity markets, coupled with economic indicators, interest rate, energy and precious metals outlook, present a complex situation requiring vigilant monitoring in the week ahead.

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