How sustainable is the stock market rally? PMIs positive surprise

Equity markets in Europe and the US continued to edge higher on Tuesday despite many now questioning whether investors are getting too carried away.

The rally appears to be based on the view that central banks from the Fed to the ECB and BoC will start cutting interest rates in March and then do so another three times over the rest of 2024. That's quite the difference from what policymakers have insisted on for many months but there has undoubtedly been a change in tone recently.

Whether that's been enough to warrant such optimism is what many are now questioning and what, I'm guessing policymakers will address at the December meeting. Regardless of whether they push back against the scale of cuts next year, it's clear now that there'll be quite a shift from central banks at their meetings this month, based on recent commentary.

Whether that will be enough to constitute the pivot that's been so talked about this year may well determine whether markets continue to price in a March cut as a u-turn of that magnitude will have to be clear from the meeting. The Fed in September indicated it expected to raise rates again, after all.

Services PMIs revised higher but outlook remains relatively unchanged

There were a lot of upward revisions to the PMI surveys from Europe and the US today and in the all-important services sector. While the revisions don't really change the outlook in any considerable way - euro area still facing a mild recession, UK flat growth, US resilient - it is encouraging that a soft landing is still attainable.

Oil prices bounce off lows after better PMI surveys

Oil prices are recovering a little from their recent lows today but Brent remains below $80 per barrel and under pressure. The OPEC+ deal did little to support prices and given the three days of declines that followed it, traders are clearly very unimpressed. The question now is whether we'll see new five-month lows amid dampened growth expectations next year. The PMIs today offer some hope and may have contributed to the rebound.

A major test for gold around $2,000 again

We're continuing to see profit-taking in gold after it started the week in remarkable fashion, smashing through record highs and bursting above $2,100. It didn't last though and already it's trading back close to $2,000 which will be a very interesting test of support after it took so long to significantly break and hold above it.