* Nasdaq rises to start the week of Nvidia earnings as Tesla shares rally

* Dollar retreats on euro strength and lower Treasury yields

* Gold rebounds from a two-month low as the dollar weakens

FX: USD sold off after a stellar run as traders paused for breath. This is relatively healthy for bulls with prices overbought on several measures. The October 2023 top resides at 107.34. Prices moved below the prior 2024 high at 106.51. There is no top tier US data this week so direction may be directed by Trump’s nominees and presumed policy priorities. Fed speakers will also grab the attention after Chair Powell last week put greater emphasis on the strength of the economy. He said that allows the central bank to approach the upcoming policy decisions “carefully”.

EUR made gains for a second straight day after the post-US election breakdown, with prices rising to the April low at 1.0603. Potential tariffs are seen hurting the region’s economy, which has been stagnant for some time. PMI data on Friday is the big risk event with around 30bps of easing priced into the December ECB meeting. The long-term low sits at 1.0448.

GBP is also trying to consolidate with a first positive day in seven, since the Thursday after the election.  Markets are focused on the CPI release on Wednesday, specifically services inflation. At present, there is less than a 20% chance of a 25bps BoE December rate reduction.

USD/JPY was up on the day with the yen the weakest major currency. BoJ Governor Ueda commented that the timing of the central bank’s next hike depended on the economy and price trends. This was his last major speech ahead of the BoJ’s mid-December policy decision. His failure to flag the risk of more tightening clearly saw JPY selling. It’s currently roughly a coin toss chance of a hike.

AUD moved above 0.65 with eyes on the RBA minutes. The bank did not actively consider a rate hike or cut, like in September. USD/CAD found resistance again just above 1.41 and pulled back closer to 1.40. Brent crude jumped nearly 3% buoyed by the weaker dollar and geopolitical tensions surrounding Russia.

US Stocks were mixed with tech leading the gains. The S&P 500 settled 0.39% higher at 5,894. The tech-dominated Nasdaq 100 gained 0.71% to finish at 20,539. The Dow finished down 0.13% at 43,390. Tesla was the notable outperformer, surging over 5.6% as the post-Trump rally continued. Energy and communication services outperformed, with eyes firmly on Nvidia’s earnings release on Wednesday after the US closing bell.

Asian stocks: Futures are mixed. Asian equities were modestly positive to kick off the week. The ASX 200 was muted as gains in utilities and commodities offset losses in tech and financials. The Nikkei 225 slid after strength in the yen, but the currency subsequently weakened after the BoJ’s Ueda comments. The Hang Seng and Shanghai Composite traded better after better sentiment from President Xi’s ‘ready to work’ comments with Trump.  

Gold surged 1.9% as the dollar and yields softened.

Day Ahead – Canada inflation

Annual inflation slowed more than expected to 1.6% in September. That was mainly on cheaper gasoline, but indicators of underlying price pressures held steady. For this report, the BoC recently noted that inflationary pressures are no longer broad based. It is seeing both business and consumer inflation expectations normalised.  The bank largely believes it can continue with policy easing and keep inflation within the 1-3% target range. The timing and pace will be guided by incoming information.

Money markets currently price in around 34bps of easing for the final meeting of the year in December. That means there’s a one in three chance of another half-point rate cut. USD/CAD recently hit highs last seen in 2020 but faces strong resistance around 1.41.

Chart of the Day – Gold tries to rebound

The yellow metal suffered its worst weekly drop in more than three years. Trump’s election victory caused the dollar to surge, halting bullion’s record-breaking run. Gold advanced more than 35% in 2024 but prices sunk around 7% this month with over a 3% slide the day after the election. Higher inflation, so expectations of fewer rate cuts have seen bond yields go higher. The precious metal is a non-yielding asset so benefits from lower rates.

ETFs saw their biggest outflows since May in early November. Money has been switched into bitcoin, which is attrating haven flows normally seen in gold. The clear cut election win has taken uncertainty out of the market. The surging dollar likely also dampens demand from central bank buying which has been a big driver of prices. The 50% mark of the June rally is at $2533. The 100-day SMA is just above at $2550 with the 50-day SMA at $2655.