We turn the page on what has been a low energy session, with very calm conditions seen across markets, with only crude, Nat gas and copper showing any kind of real pulse. A reflection of the lack of any tangible news to inspire fresh positioning, with a hotter US JOLTS report or the confirmation on the timing of the French no-confidence vote failing to set off any real gyrations.

As we opined on in Monday’s ‘Traders’ Week Ahead Playbook’, the event risk kicks into gear later this week and into mid-December, with US NFP (Friday), US CPI (11 Dec), China’s Central Work Economic Conference (11-12 Dec), before we hear from the 8 or so G10 central banks who meet between 11-19 Dec. Subsequently, these current sleepy conditions may not last for long, and this may well be the calm before we see a happier hunting ground for those that conduct their best work in higher volatility (vol)/higher daily ranging markets presents itself. We’ll see, but that regime certainly feels possible.

On the day, we see a limited net change in any of the US equity bourses, with the S&P500 cash index tracking an 18-handle high-low trading range. Cash equity volumes have been fine, and in line with the 30-day average, while S&P500 futures have traded 904k contracts vs the 15-day average of 1.4m. In the options space, 2.52m S&P500 options have traded vs the 20-day average of 3.08m, while looking at participation 31% of S&P500 companies have closed higher on the day, led by Comm Services, and Tech.

Participation and volume aside, the set-up in the S&P500 and NAS100 suggests both equity indices look exhausted, with a clear case of buyer’s fatigue. The market is heavily long of US equity in both cash equity and futures, and while we must be open-minded that a goldilocks (i.e. improved but not too hot) US services ISM (in the session ahead), and NFP report could reinvigorate the bulls for one last push higher into year-end, there is also the risk of a low vol grind, with traders taking whatever scraps they can get from selling S&P500 (and single stock) calls to enhance the returns in equity.

In the Treasury market, we’ve seen long-end Treasury yields moving 4bp higher, with the 2yr unchanged, resulting in a 4bp steep curve. US interest rate swaps imply a 72% chance of a 25bp cut from the Fed on 18 Dec, and that may evolve with the US ISM services print in the session ahead, and Fed Chair Powell speaking in late US trade – one suspects, in a similar vein to what we heard from Christopher Waller, Powell will express a willingness to ease by 25bp at the December meeting, but any call remains driven by the incoming data.

Still, it remains very orderly in rates and bonds and perhaps the lack of vol here is spilling over into more chilled conditions in other asset classes.

The lack of any real trend in US rates/Treasuries sees the USD index (DXY) little changed, with EURUSD (+0.1%) the core contributor to that lack of move in the DXY. EUR traders will have an eye on the French no-confidence vote (the debate starts at 4 pm local time), and the extent of any move in the EUR will likely come from the French 10yr – German 10yr bond yield spread.

Macron is certainly publicly confident that the government can survive the vote, believing Marine Le Pen will reject it. One suspects this outcome could see relief manifest in EURUSD and we see a move towards 1.0600. There is of course risk that the vote passes, the 2025 budget will be rejected, and PM Barnier will be on his way. The uncertainty that could be injected could take EURUSD towards 1.0470/50, with further falls conditional on the US economic flow.

AUDUSD also gets some attention today, with Aussie Q3 GDP on the docket, although I’m personally hesitant to think the GDP print causes any real life in the AUD, as GDP is as backwards as it gets and traders are trying to model growth in Q4, if not Q12025. The market looks for Q3 GDP of 0.5% q/q / 1.1% y/y, and it would likely need to be a sustainable miss/beat to get AUDUSD moving, as we see in the daily set-up, the exchange rate looks very comfortable in a 0.6550 to 0.6450 range.

In commodity markets, we’ve seen life in crude, copper, and Nat Gas. Brent futures have seen a solid low-high trend day and sit +2.5% higher. OPEC+ may be holding off from any changes to output for a few months but talk of US-imposed sanctions on Iranian output has been a trigger for the buyers to take price into $73.93. One swallow does not make a Summer, and we’ll need new news to get crude into any kind of trending conditions and a quick look at the higher timeframes shows that Brent crude is still very comfortable in its $75.00 to $70.70 and these levels define the risk.

With the leads or the lack of them, our calls for the Asia cash equity open suggest a largely unchanged unwind – the economic data due out through Asia shouldn’t trouble equity to any great extent, so making a call on the ongoing direction of travel is tough, and we’re fully at the mercy of portfolio flows. The obvious target for the ASX200 bulls is to push for a daily close above 8500, but that may take a solid effort from both the banks and materials plays.

Good luck to all

Chris Weston Head of Research Pepperstone