Market retreat deepens ahead of key data

The S&P 500 extended its retracement slide on Monday, down nearly 1.0% and closing under the 50-day SMA at 6,707 for the first time since May this year. While several bearish technical signals have emerged, the pullback remains modest at roughly 6.0% from record highs, leaving the longer-term trend intact.

A similar picture is evident in the Nasdaq Composite, which fell 0.8% yesterday. Overnight, Asia-Pacific stocks followed suit, with Japan’s Nikkei 225 shedding more than 3.0%, as geopolitical tensions between Japan and China added another layer of uncertainty. As of writing, European and US equity index futures are also experiencing losses.

Cryptocurrencies were a talking point once again yesterday, demonstrating little evidence of abating. The BTC/USD continued to explore deeper waters, recently dipping a toe beneath US$90,000 and down more than 2.0% ahead of European trading today. The Crypto pair is down nearly 20% MTD amid rising risk aversion.

In the FX space, the USD caught a bid, while longer-dated US Treasury yields moderately fell. Meanwhile, Spot Gold pencilled in losses for a third consecutive session yesterday, and is down 0.8% as of writing.

Headline Canadian inflation data cools in October

On the macro front, we had the October Canadian inflation print land yesterday. YY headline CPI inflation eased to 2.2% from 2.4% in September, moderating largely on the back of gasoline which dropped -4.8% MM. Excluding food and energy prices, however, inflation rose by 2.9% from 2.8%. The BoC’s preferred measures of inflation – CPI Trim and Median – held near the upper boundary of their inflation target (3.0%), cooling to 3.0% and 2.9%, down from 3.1% and 3.0%, respectively.

Despite some moderation in the headline print, the fact that the BoC’s preferred indicators continue to reflect elevated price pressures suggests the central bank has little reason to continue easing policy at this point. Markets are currently pricing in just 3 bps of easing for next month’s meeting.

Fed speak

Fed officials also made the airwaves yesterday. Governor Christopher Waller is firmly backing a 25-bp rate cut for next month’s meeting, noting that he is less concerned with inflationary pressures and more with weak jobs. Fed Vice Chair Philip Jefferson, however, echoed a more cautionary tone, albeit acknowledging downside risks to employment.

Given the Fed’s concern regarding the jobs market, Thursday's delayed September jobs report will provide investors with crucial clues on the Fed’s policy outlook. Markets continue to price in just 10 bps worth of cuts at the December meeting (40% probability), and a total of 85 bps of easing by the end of 2026.

Looking ahead: UK inflation and Nvidia’s moment

In terms of today’s calendar, tier 1 data is limited. Wednesday, however, will be an interesting session, featuring the October UK CPI inflation data and, of course, Nvidia’s (NVDA) Q3 earnings, which are taking the majority of the spotlight this week.

Unless we see a meaningful upside surprise in the UK data, and given the soft UK GDP numbers, I expect BoE Governor Andrew Bailey to switch sides next month and vote to cut the bank rate by 25 bps to 3.75% from 4.00%.

The stakes are high with Nvidia’s earnings report, with hefty valuations and concerns about AI spending at the forefront. Analysts expect an adjusted EPS of US$1.25 on revenue of US$55 billion, most of which is expected to come from the company’s data centre operations.