Ukraine peace plan hopes and weak US economic data dominate markets

Two developments are dominating markets as we move through Tuesday. The first is news that Ukraine has agreed to the terms of a peace deal with US representatives according to reports in the US. This had an immediate impact on the oil price, which is lower by more than 1%, and Brent crude has dipped below $63 per barrel on the back of this news.

It is worth noting that we do not know if this has been agreed by Russia or if it will ultimately lead to a peace deal, but it does suggest that dialogue between the US and both sides could bear fruit, even if it is a long process.

If the news flow remains positive, then we could see continued downside for the price of oil, although $60 is a major support zone for Brent crude, and it may take a big driver, such as an end to immediate sanctions on Russian energy sales, to weigh on oil further. We think that it is far too early to consider an outright end to Russian sanctions, so if there is no further positive developments regarding this story in the coming days, then these moves could be faded.

The other main driver for markets has been a US data dump, which is supporting further Fed rate cuts. The ADP private sector employment average weekly reading for November 8^th was a loss of 13,500 private sector jobs. A weak labour market reading combined with weaker than expected retail sales for September have pushed up expectations of a Fed rate cut next month to 80%.

The US economic data has helped to boost US equities, and S&P 500 futures have picked up from their lows after this news. Overall, the most recent selloff in stocks was driven partly by AI stock market valuations and partly by fears that the Fed would not step up and cut rates. The latter seems to be resolved: it now seems likely that the Fed will cut rates, which could pave the way for stock market gains into year end.

So far on Tuesday, the market reaction seems mild. Stocks had a strong move to the upside on Monday, so some pullback at this stage is to be expected, especially as volatility remains above 20, even if the Vix is retreating.

Overall, the focus on Tuesday will be Fed rate cut expectations, and the continued sell off in Nvidia’s share price as the chip maker faces competition from its former customer, Google.