Global market sentiment turned cautious, with US equities extending losses and commodities weakening, as investors lowered expectations for a December interest rate cut by the Federal Reserve and anticipated key earnings and economic data, according to analysis by Century Financial chief investment officer Vijay Valecha.
The S&P 500 and the Nasdaq both declined by 0.99 per cent in Monday’s session and continued to trade lower yesterday, reflecting persistent “fear and caution” over stretched valuations, particularly in the AI sector.
Market attention is focused on Nvidia’s results, which are expected to “knock the lights out” but are being closely watched amid anxiety over high AI valuations.
Investor anxiety is also tied to the Federal Reserve: the probability of a rate cut at the December meeting, per the CME FedWatch tool, has slipped below the 50pc mark to 46.6pc. If the Fed maintains steady rates, tighter financial conditions could weigh on equity valuations, Mr Valecha noted. Traders are awaiting US Industrial Production data for further economic clues.
WTI crude closed 0.23pc lower Monday and fell another 0.4pc yesterday, as concerns over an oversupply outweighed broader geopolitical risks.
Oil prices are being weighed down by expectations that Opec+ and non-Opec producers will increase output, potentially leading to a sizable supply surplus.
Geopolitical risks ‘including disruptions to Sudan’s crude exports, a recent strike on a Russian port, and Iran’s seizure of an oil tanker’ are expected to provide only “modest” and “limited support” to prices, according to the report.
The US Dollar Index eased slightly to 99.475, reflecting uncertainty surrounding the Fed’s future moves. Risk aversion has accelerated momentum for safe-haven currencies like the Swiss franc and the Yen ahead of tomorrow’s critical US employment release.
Gold declined nearly 1pc on Monday and continued its drop yesterday by 0.8pc as the probability of a December rate cut fell to below 50pc. The subdued rate cut prospects dampened the outlook for gold, which typically benefits from lower rates and a weaker dollar.
Despite the recent pullback, gold’s long-term trend remains intact, supported by strong central bank purchases, which have been diversifying reserves to hedge against geopolitical and fiscal risks. Goldman Sachs estimates that central banks bought 64 tonnes in September, more than triple the August amount, a trend expected to continue.
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