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European Markets to Open Higher Amid Global Optimism

Hopes of Fed Rate Cut Fuel Market Optimism

U.K. Investors Prepare for Autumn Budget and Tax Hike Speculation

Source: CNBC

Over the past week, gold has continued to trade in a sideways range. Structural weakness in September's US nonfarm payrolls, sudden dovish shifts from Fed officials, and risk-off buying amid geopolitical tension temporarily supported gold. However, missing key economic data combined with internal Fed disagreements has made it difficult for the market to form a consensus, limiting sustained upside for bulls.

This week, the focus will be on September's US retail sales and PPI, which could provide key guidance ahead of the Fed's December meeting and offer clues for the next direction of gold.

Technical Observation: Bulls and Bears Neck-and-Neck, Intraday Volatility Rising

From a technical perspective, XAUUSD traded mostly between $4,000 and $4,130 last week. Repeated long wicks on daily candles indicate a tight battle between bulls and bears, with intraday swings clearly amplified.

On Monday's open, bears took the lead, pushing gold back toward the uptrend line established at the end of October—an important short-term support level for bulls.

If this trendline is convincingly broken, gold could test the $4,000 psychological level and the 50-day moving average, which may offer temporary support before a deeper correction unfolds.

Conversely, if buying pressure returns and short-term sentiment stabilizes, the key to an upward move will be whether gold can break last week's range top at $4,130 and the mid-November high of $4,250.

Mixed Employment Signals and Fed Divisions

The primary force influencing gold remains market uncertainty over the US economic outlook, which has become more pronounced.

On the employment front, data noise is increasing. September's nonfarm payrolls rose by 119,000, well above expectations of 50,000, but the previous two months were revised down by 33,000, and the unemployment rate jumped to a four-year high of 4.4%. Meanwhile, initial jobless claims declined, but continuing claims continued to rise.

These conflicting signals make it difficult for the market to assess whether the labor market is cooling or fluctuating, complicating the Fed's rate path projections.

Fed policy divisions are also becoming more visible. According to the October meeting minutes, most officials believe "further rate cuts could entrench inflation," with hawks like Collins and Logan reinforcing this view. However, New York Fed Governor Williams unexpectedly signaled a dovish stance last Friday, suggesting room for near-term rate cuts.

As one of the Fed's "big three," alongside Powell and Jefferson, Williams usually leans hawkish. His dovish guidance led the market to dramatically repricing December rate cuts from 30% to roughly 70%.

Complicating matters further, key economic releases have been disrupted. The Bureau of Labor Statistics confirmed that the October nonfarm payroll report is postponed, with November's report delayed until December 16; October CPI was canceled, and November CPI will be released on December 18. In other words, the Fed may have to base its December meeting decisions on outdated September data.

The mix of confusing employment signals, extended data gaps, and sharp revisions to rate cut expectations makes gold's short-term direction harder to gauge. Yet, this uncertainty continues to support safe-haven demand, providing a floor for prices.

Meanwhile, rising rate cut expectations have pushed US Treasury yields lower, with the two-year yield dipping below 3.5% last Friday, theoretically supporting non-yielding gold. However, the dollar remains strong above 100, limiting upward momentum for gold.

Geopolitical Tensions Keep Safe-Haven Demand Alive

As markets reassess the likelihood of a year-end Fed rate cut, developments in the Russia-Ukraine conflict are also under scrutiny. Recently, US media reported that the Trump team proposed a 28-point Ukraine peace plan covering territorial, military, and diplomatic issues.

In reality, this plan remains far from implementation. Its provisions would require significant concessions from Ukraine, the EU has voiced objections, and Russia has stated it has not discussed the details with the US. Ambiguity in the plan and an unclear path to execution make it difficult for the market to view it as a genuine sign of easing tensions.

Amid persistent geopolitical risks, skepticism over the peace outlook remains. Short-term breakthroughs appear unlikely, supporting safe-haven demand and providing a floor for gold.

US Retail Sales and PPI: What's Next for Gold?

Overall, gold continued its choppy pattern last week. Mixed released data and delayed upcoming releases make it hard for traders to form a consensus on the Fed's rate path, keeping trend-following moves limited in the short term. Unless there is a major surprise, gold is likely to remain range-bound ahead of the next Fed meeting.

This week, the US Thanksgiving holiday shortens trading days and reduces liquidity. While major data releases are limited, September retail sales and PPI are key, as they directly reflect economic health and inflation trends, influencing market expectations and gold.

The market expects September retail sales to rise 0.4% month-on-month, slightly below August's 0.6%, while PPI year-on-year is expected to remain at 2.6%.

If retail sales are soft and inflation remains moderate, rate cut expectations may rise further, potentially pushing gold toward $4,100. Conversely, strong data could temper rate cut bets, putting gold at risk of breaking below $4,000.

Source: Pepperstone

Volatility Sparks Concerns of an 'Everything Bubble'

Factors Contributing to the ‘Everything Bubble’

Investor Sentiment Divided

Source: CNBC

In focus this week

Today in Germany, we receive the Ifo indicator for November. The PMI released on Friday surprised on the downside, although this mainly seems like an "adjustment" from very high numbers in the past months. Even after the decline the composite PMI is still at the highest level in one and a half years when excluding the October reading.

On Wednesday, we will keep an eye on the UK as Chancellor Reeves presents the Autumn budget. Gilts and GBP will be sensitive to how an inevitable fiscal tightening looks and whether the fiscal gap is plugged sufficiently. Markets soured on the UK when Reeves recently scrapped plans to hike the income tax rate.

On Thursday, we look for euro area credit growth data and Danish retail sales for October. Regarding retail sales, our Spending Monitor showed a 0.6% m/m decline in real retail spending in October, and we expect spending growth to remain muted.

Rounding off the week, we receive the flash estimates of inflation in Germany, France, Italy, and Spain which together will reveal almost entirely how inflation in the euro area fared ahead of the aggregate data next week.

Economic and market news

What happened overnight

In the Ukraine war, US Secretary of State Marco Rubio stated that peace talks in Geneva "showed meaningful progress" but declined to share details. On Sunday, US President Donald Trump urged Ukraine to accept the 28-point plan, blaming Ukraine and Europe for the lack of a truce.

What happened over the weekend

In the euro area, November PMIs were close to expectations with the composite PMI falling marginally to 52.4 from 52.5 in October (cons: 52.5). The manufacturing PMI declined to 49.7 from 50.0 (cons: 50.1) and the services PMI climbed to 53.1 from 53.0 (cons: 52.8). The price indices showed an uptick in input prices and marginal decline in output prices. Inflation remains under control and risk has shifted from inflation being too high to instead being too low. With growth still holding up, we expect the ECB to be on hold at 2.0% in the coming year despite inflation forecasted to fall below the 2% target.

The ECB's indicator of negotiated wages declined by more than expected to 1.9% y/y in Q3 (cons: 2.5 y/y) compared to 4.0% y/y in Q2 and 2.5% y/y in Q1. A faster-than-expected decline in wages is a downside risk to our outlook of unchanged ECB policy rates, as it would lower services inflation which is the main category holding overall inflation up.

In the US, New York Fed President John Williams said that he still saw "room for further adjustment", backing a cut at the next meeting in December. Markets are now pricing about a 60% likelihood of a rate cut in December. Meanwhile, Fed vice chair Philip Jefferson and Boston Fed President Susan Collins did not really comment on the near-term rate outlook and Dallas Fed President Logan reiterated her earlier view that she would find it difficult to cut rates in December.

November flash PMIs landed close to expectations. The manufacturing PMI declined to 51.9 from 52.5 in October and appeared weaker than the headline index suggests. The order-inventory balance turned sharply lower to 46.1 from 49.5 and all else equal, weaker order-inventory predicts weaker output growth as well. Services PMI on the other hand increased to 55.0 from 54.8 in October, with both new orders and price indices turning higher. Overall, the flash print was a mixed bag for the Fed, with some concerning signals surrounding the manufacturing growth momentum.

Equities: Equities stabilized on Friday after several unsuccessful attempts earlier in the week. The S&P 500 finally closed 1% higher, Russell 2000 gained a full 3%, while European Stoxx 600 edged 0.3% lower. Importantly, this was not a rebound led by last week's most-sold names. Instead, markets saw a selective rotation, with investors refraining from buying the dip in the most heavily sold AI names (or in Bitcoin for that matter, down -2% on Friday despite -20% over the last month). Rather, it was small caps and sectors such as materials, healthcare, and consumer discretionary that fared the best. Similarly, we are not seeing the rebound spread to the AI hardware region – Asia – this morning, although European and US futures are higher.

A selective rebound makes sense to us, as last week's selloff was unusual – not in magnitude, but in the fact that the drawdown in equities was not synchronized with other asset classes. While the S&P 500 is 4% off its highs, yields, copper prices, gold, and credit spreads are little changed. We interpret this as a sign that the November selloff is neither macro-driven nor liquidity related. As such, the fundamental read-across to equities outside the AI theme – such as European markets – should be limited.

Is this a buying opportunity then? In a sense, yes. We remain positive on equities on a 3-6 months horizon with a slight equity overweight stance. However, the fact that the equity selloff has not been mirrored in other asset classes also means that positioning support remain absent. Investors have not panicked into bonds – quite the opposite, according to November's fund manager survey, which showed extremely low cash levels. Our correction monitor, which tracks indicators such as the VIX, CTA hedge fund beta, or bull-bear spreads, is far from oversold conditions. As such, we are refraining from increasing the equity overweight further for now.

FI and FX: Dovish comments from Fed's dove Williams sent US rates lower – UST10y from 4.15% to 4.05% – and raised the probability of a December cut to 16bp from a 7bp low after the FOMC Minutes. It supported risk sentiment and lifted equities to a decent c. +1% close after a rough week. Equity futures are in green this morning, while Japan is closed for holiday. The USD's outperformance pulled EUR/USD toward 1.1500. EUR/SEK and EUR/NOK trade around 11.00 and 11.80, respectively.

Source: Danske Bank

The Pound US Dollar (GBP/USD) exchange rate fell over a cent last week, as hawkish Federal Reserve interest rate expectations and a cautious market mood turbocharged USD demand.

Latest — Exchange Rates:

Pound to Dollar (GBP/USD): 1.30964 (-0.01%)

Euro to Dollar (EUR/USD): 1.15105 (-0.03%)

Dollar to Japanese Yen (USD/JPY): 156.5935 (+0.13%)

WEEKLY RECAP:

The US Dollar (USD) strengthened through the first half of last week, underpinned by a cautious market mood.

This risk-off sentiment was triggered by equity market jitters and concerns over global growth, and drove investors towards safe-haven assets like the 'Greenback'.

The upside in USD was then compounded through the middle of the week, with the release of the minutes from the Fed's latest policy meeting.

The minutes showed that most policymakers are resistant to further easing, leading the odds for a December rate cut from the US central bank to fall dramatically.

This momentum then carried through into the latter half of the week, with the release of the latest non-farm payroll data.

September's delayed data showed the US economy added 119,000 jobs, smashing forecasts and cementing bets that a December rate cut is likely off the table.

The Pound (GBP) struggled to put up much resistance against the US Dollar last week amid a run of lacklustre UK economic releases.

The most notable pressure came with the release of the UK's consumer price index, which reported the first fall in inflation in five months and ramped up expectations the Bank of England (BoE) will press ahead with a December rate cut.

Underwhelming data at the end of the week also proved a headache for Sterling, as it reported a slowdown in the UK's vital services sector in November, as well as a surprise contraction in retail sales in October.

On top of this, GBP sentiment was also undermined throughout the session by a sense of caution ahead of the UK's autumn budget.

Near-Term GBP/USD Forecast: Markets Brace for UK Budget

The Pound US Dollar exchange rate is poised for a potentially volatile week, with the UK's highly anticipated autumn budget expected to dominate headlines.

Sterling will likely drift sideways until Wednesday, as traders hold off on major positions before seeing Reeves's fiscal priorities. Reaction to her proposals is then set to define GBP/USD's next moves.

If the budget raises doubts – whether due to limited detail, an emphasis on tax increases or insufficient reassurance for bond investors – the Pound could risk striking new multi-month lows.

Meanwhile, the coming week will see the release of a number of US economic indicators previously delayed by the US government shutdown, with the US Dollar potentially faltering if they also surprise to the upside, similarly to the payrolls figures.

Source: EXCHANGERATES