US passed, Japan scored

The US economy lost 32’000 jobs in November. And no, it’s not AI’s fault. Small companies with fewer than 50 employees shed 120’000 jobs last month, according to the latest ADP report. Those losses outweighed gains in bigger companies. Overall, 32’000 people lost their jobs — the fourth negative print in the last six months. On average, the big and beautiful US economy has added fewer than 20’000 jobs per month over the past six months — a level comfortably pointing at recession.

Add to that the big companies, like Apple and Microsoft, planning headcount reductions — this time citing AI — and you get a pretty… amazing picture for the financial markets.

The job losses will push the Federal Reserve (Fed) toward faster and deeper rate cuts. And if, on top of that, people slow their spending because they’re out of work and inflation eases, that would be the cherry on top.

Odd, but that’s exactly how markets process information.

Yesterday was a typical “bad news is good news” session. You could see the cheery mood across US assets: job losses sent the 2-year Treasury yield below 3.50%, the probability of a 25bp cut in December rose to 90%, and the S&P 500 traded at 6’862 — just 58 points, or less than 1%, below its all-time high.

Interestingly, technology stocks — normally more sensitive to yields because much of their valuation is based on future revenue discounted to today — barely moved. The Magnificent Seven stayed stoic. Microsoft was busy denying a report from The Information claiming it lowered growth targets for AI software sales after many salespeople missed their goals last fiscal year. Investors read it as: “They’re not selling enough AI products, their targets are being lowered, and all these investments could be garbage.” Microsoft shares closed 2.5% lower. Nvidia lost 1% despite news that it could get approval to sell chips to China — if China is still willing to buy, which is no longer guaranteed.

Tesla, on the other hand, gained more than 4% — for reasons I can’t fully explain. Tesla sales are crashing in Europe, the company warned that UK sales are weakening, and Michael Burry called Tesla “ridiculously overvalued.” I agree. Tesla has become a massive meme stock, with a PE ratio near 300: you buy the share for around $446.74 as per yesterday’s close and earn roughly $1.50 per share. Expensive, yes — but some people like it. Plus, there was some non-EV-friendly news: Trump lowered climate goals, which sent Stellantis up almost 8% in Milan. Go figure why Tesla rallied.

Overall, the US session was solid. And the Japanese session was excellent, as a sale of 30-year government bonds drew the strongest demand since 2019 — at the current multi-decade high yield, near 3.40%. Given that pressure in JGBs has been a major risk to global risk appetite — even more so since the Bank of Japan (BoJ) head on Monday hinted at a possible rate hike this month — the rally in JGBs helped lift the Nikkei by 2%.

US futures, however, look mixed despite the rally in Asia. Nasdaq futures are slightly negative at the time of writing. Perhaps Morgan Stanley’s news that it is considering offloading some data-center exposure didn’t help. According to their calculations, the big cloud companies will spend around $3 trillion on data centers through 2028, but their cash flow can fund only half. Oracle’s CDS — now a barometer of AI-related risk — spiked to a 16-year high, hinting that appetite is fading.

Investors are awaiting tomorrow’s PCE numbers, which could further clear the path for rate cuts beyond December. At this pace of economic deterioration, the Fed may have little choice but to cut further. The question is whether softening Fed expectations will revive tech risk appetite, or if the rally will shift to non-tech and smaller companies. The Russell 2000, for example, rallied nearly 2% yesterday on the back of the weak ADP report. Fading AI enthusiasm due to high valuations, combined with lower yields, could push funds toward these companies.

In FX, the US dollar slipped below its 50-DMA and is testing a major Fibonacci support — if broken, it could enter a medium-term bearish zone. The broadly softening USD, on rising dovish Fed expectations, lifted the EURUSD above its 100-DMA. Europeans are unlikely to move rates next year, as inflation is around 2% and risks are two-sided. In Switzerland, zero inflation and strong demand for the franc continue to worry the Swiss National Bank (SNB), which doesn’t want to cut rates below zero. If the Fed cuts enough to lift global risk appetite, it could reduce the rush to Swiss francs.

A Fed cut is also positive for European stocks: lower US yields lift equities, and a stronger euro enhances returns in USD terms.

Elsewhere, copper rallied more than 2% on COMEX, amid concerns that potential US tariffs could squeeze supply. Metals remain investor favorites as appetite for traditional currencies wanes.

As we head toward year-end: it’s time to explore non-tech, non-US pockets of the market. Emerging-market indices benefit when the dollar softens, and European indices have performed very well this year to close the valuation gap. There’s certainly more to take advantage of, though it’s less flashy than the US tech story.