01/12/2025 Daily Reports
Mixed Start to December: Global Equities Diverge as Energy and Gold Extend Gains
- Global risk sentiment is cautious at the start of December, with U.S. equity futures, including Nasdaq, trading lower ahead of a data-heavy week. Investors are reluctant to add risk before key U.S. macro releases, and U.S. futures remain in the red alongside mixed Asian markets.
- In Europe, the tone is more constructive: the DAX has extended its winning streak, recently closing around 23,778 for a fourth straight gain. Hopes for future rate cuts and resilient earnings are underpinning sentiment, and market commentary is already leaning on the “December effect,” with historical patterns highlighting December as one of the strongest months for European indices.
- Japan stands out on the downside. The Nikkei 225 is down roughly 1.3–2%, snapping its recent run as rising JGB yields and a stronger yen on Bank of Japan hike speculation weigh on equities. Freshly released weak factory activity data adds another headwind, leaving Tokyo underperforming the wider Asian complex.
- In commodities, natural gas and oil are both firmer. U.S. natural gas futures have climbed over 3%, trading near 4.8 USD/MMBtu and marking a third consecutive monthly gain, supported by colder weather forecasts, higher heating demand expectations, and a larger-than-expected storage withdrawal. Brent crude is up more than 1.5% to around 63–64 USD per barrel after OPEC+ opted to maintain current production levels, while additional support comes from supply risks tied to damage at a key Black Sea terminal and broader geopolitical tensions involving Russian energy infrastructure and Venezuelan airspace.
- Gold is quietly grinding higher alongside this backdrop. Spot prices are edging up around $4,227 per ounce, extending roughly 5–6% gains over the past month, with local markets such as India reporting steady to slightly higher retail prices that mirror the strength in global benchmarks.
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Validation Week in FX: Will Data Back the Fed Cut Bets?
USD: Expensive & Vulnerable
- Validation Week: Markets have fully priced in a December Fed cut. This week’s data trio (ISM, ADP, PCE) is expected to confirm the economic slowdown, leaving the Dollar with little room to rally.
- Employment Warning: Watch out for Wednesday’s ADP report; expectations are near zero growth, which would be a massive bearish signal for the Greenback.
- The Trump Card: Rumors are swirling that Donald Trump might nominate Kevin Hassett (a known dove) as the next Fed Chair, adding further pressure on the USD.
EUR: Geopolitics Take Center Stage
- Peace Dividend: All eyes are on US envoy Steve Witkoff’s trip to Russia. Any progress in Ukraine negotiations could be the catalyst that sends high-beta European currencies soaring and energy prices lower.
- Undervalued Opportunity: Despite soft inflation data, EUR/USD remains roughly 1.5% undervalued according to fair value models. A return to 1.170 is the baseline target for the week.
JPY: The Sleeping Giant Wakes Up
- Hawkish Shock: BoJ Governor Ueda dropped a bombshell, signaling that a December rate hike is actively being considered.
- Political Green Light: The fear that PM Takaichi would block a hike has evaporated. The path is clear.
- Trend Reversal: USD/JPY is heavily overvalued. With US rates looking down and Japanese rates looking up, a decisive break below 155.00 is a major risk.
What’s Next?
The market is currently caught in a spiral of “Confirmation Bias.” Investors are so convinced that the Fed will cut rates (fully priced) that they are primed to interpret any incoming data solely in a way that supports this belief.
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