Nvidia’s earnings report didn’t disappoint, beating analysts’ expectations. New York Fed President John Williams suggested there’s still room for a rate cut in the near term and flagged rising risks for the labor market, pushing expectations for a December rate cut higher (now above 75%).
Still, neither of these factors managed to lift investor sentiment, and major U.S. indexes, including the S&P 500, the Nasdaq, and the Dow Jones, closed in the red. Concerns about a potential AI bubble, combined with the fact that the reverse repo facility has essentially been drained, outweigh the positives.
What could restore optimism to the markets?
On the geopolitical front, one of the key news stories this week will be the possible agreement to end the conflict between Russia and Ukraine. Initially, Trump gave Kiev until November 27 to accept the deal, but Secretary of State Marco Rubio clarified that this deadline is not set in stone and could be postponed.
As for the chances of success, the 28-point proposal, reportedly drafted in secret with Moscow and presented to Ukraine, contains red lines that Kiev refuses to accept: recognition of the occupied territories as part of Russia, restrictions on its armed forces, and limits on alliances. Without these concessions, Russia will not sign.
If progress is made, it could boost risk assets while weighing on gold and oil prices.
Another key factor to watch is the reverse repo facility, which is nearing zero, signaling that excess liquidity is dwindling. At the same time, repo usage is rising as banks rely more on daily funding from the Fed. If the reverse repo cushion disappears entirely, the Fed may need to rethink its QT plans to prevent systemic risks.
On the macro side, retail sales for September and September’s PPI will be released on Tuesday, the Fed’s Beige Book on Wednesday, and weekly jobless claims on Thursday. Even though some of these indicators are lagging, they will still help clarify what’s happening in the U.S. economy and provide insight into the Fed’s next moves.
Overall, even though the week will be short due to the Thanksgiving holiday in the U.S., there should still be plenty of events to watch, as they could have a significant impact on market sentiment. It may also be helpful to track Bitcoin price movements and the Russell 2000 to gauge the risk-on level.
This article was written by IL Contributors at investinglive.com.