Risk sentiment stayed weak early Tuesday as markets reacted to fading odds of a December Federal Reserve (Fed) rate cut and awaited major U.S. data, events, and earnings, while mixed geopolitical and trade developments added to caution.
In the U.S., stronger data continued to cut the probability of a December cut. The Empire State Manufacturing Index surged to 18.7, a year’s high, from 10.7 versus 6 expected, and the Atlanta Fed GDPNow estimate for Q3 rose to 4.1% from 4.0%. These reinforced expectations that firm data may keep the Fed more hawkish even after the 50 basis points of cuts planned for 2025.
Market pricing for a December cut has fallen from nearly 100% to around 35% as inflation stays just under 3% and employment remains steady.
Fed Governor Miran remains alone in pushing for a more forward-looking stance, while most policymakers say the path back to 2% is long.
Fed Vice Chair Philip Jefferson supported last month’s quarter-point cut due to rising labor risks but urged caution as policy approaches neutral, citing easing upside inflation risks and mixed labor signals.
Fed Governor Christopher Waller said he firmly supports another quarter-point cut at the December 9–10 meeting, arguing the labour market has weakened enough.
Donald Trump added political tension by saying he would be “OK” with bombing Mexico to stop drug trafficking.
China added to global uncertainty. Beijing tightened pressure on Japan by banning state-owned enterprise travel, cancelling tour groups and events, and halting Japanese film releases after Prime Minister Takaichi said a Chinese attack on Taiwan could prompt Japanese military action.
China also deepened economic ties with Russia as Premier Li Qiang met Russian Prime Minister Mikhail Mishustin in Moscow, pledging broader cooperation in agriculture, investment, energy, and cultural exchange and welcoming more high-quality Russian food exports.
China issued initial price guidance for a €4 billion euro-denominated sovereign bond across 4-year and 7-year maturities at mid-swaps +28 bps and +38 bps as it continues diversifying away from USD markets.
A positive surprise came as China’s state-owned grain trader COFCO bought at least 14 cargoes—about 840,000 tonnes—of U.S. soybeans for December and January, its largest purchase since the Trump–Xi summit, lifting U.S. soybean futures to a one-year high.
Across Europe, ECB Vice President de Guindos said inflation is converging toward the target but uncertainty persists, and warned that the upcoming Financial Stability Review will highlight risks of market corrections, fiscal vulnerabilities, and potential credit-quality decline despite strong bank profits and capital buffers.
ECB’s Sleijpen said Euro-area inflation risks are broadly balanced and policy is “in a good place,” while Makhlouf stressed a meeting-by-meeting approach and stronger regulation for stablecoins.
Bloomberg’s Alex Wickham reported that the UK is preparing retaliation against EU steel tariffs of up to 50% and reduced quotas and may raise its own barriers, despite saying the EU measures contradict the spirit of the recent UK–EU summit. BOE policymaker Catherine Mann noted an upward bias in Consumer Price Index inflation.
Japan remained in focus as Finance Minister Katayama said she is “alarmed” by recent one-sided, rapid yen moves, escalating verbal intervention as 30-year Japanese Government Bond yields rise to around 3.30%, their highest in decades. She said the fiscal stimulus package has become sizable but gave no details and argued that negative GDP growth supports additional fiscal spending.
Economy Minister Kiuchi said the economy remains “improving moderately,” reiterated that long-term rates are set by markets, and said authorities are monitoring long-dated yields.
Bank of Japan Governor Kazuo Ueda meets Prime Minister Sanae Takaichi today at 3:30 p.m. Tokyo (0630 GMT / 0030 ET), a key meeting as markets watch for clues on the next rate hike. Nikkei reported that Prime Minister Takaichi is considering tax cuts to spur investment.
In Australia, RBA minutes from the November 3–4 meeting showed a more balanced stance. Rates could stay unchanged longer if demand holds, though easing is still possible if growth or labour softens. The 3.6% cash rate is seen as only slightly restrictive, complicated by rising housing credit and firm consumer demand. Inflation is expected to remain above target until mid-2026, making the tone marginally hawkish and trimming near-term easing expectations, while the AUD stayed steady.
Canada reported October Consumer Price Index inflation at 2.2% year-over-year, slightly above the 2.1% forecast.
The U.S. Dollar Index (DXY) extended its recovery from a two-month low. Gold failed to attract safe-haven flows as it reacted to the stronger USD. Crude oil fell for a second day, and risk pairs such as AUDUSD and USDJPY reflected the broader sour tone, while EURUSD and GBPUSD stabilized after two days of losses. Bitcoin dropped below $91,000 in Asia for the first time in six months. Wall Street closed lower, and Asia-Pacific equities followed suit.
EURUSD and GBPUSD remain under pressure early Tuesday after a two-day drop, though the downside has slowed. Mixed comments from European Central Bank and Bank of England officials, along with ongoing trade and geopolitical concerns in the Eurozone and the UK discussed above, continue to weigh on the Euro (EUR) and the British Pound (GBP), especially as the U.S. Dollar rebounds broadly. At the same time, the Japanese Yen’s (JPY) haven appeal, rising fears of Bank of Japan intervention, and mixed signals on Japan’s stimulus and BoJ rate-hike outlook are limiting USDJPY after the pair hit a multi-month high last week.
AUDUSD fell for a second straight day to a one-week low, weighed down by broad risk aversion, mixed China news, and slightly less hawkish minutes from the Reserve Bank of Australia’s (RBA) latest monetary policy meeting. Caution ahead of key data and events later this week, along with mixed recent economic signals from Australia, is keeping the Aussie pair under pressure.
NZDUSD followed AUDUSD lower for a second day, pressured by a firmer USD and weak risk sentiment. Meanwhile, USDCAD struggled to attract buyers as crude oil, Canada’s key export, fell for a second day. Slightly stronger Canadian inflation and hopes for improved U.S.–Canada trade ties may be supporting the Canadian Dollar ahead of upcoming top-tier data.
Gold fell for a fourth straight day to a one-week low, while WTI crude oil extended losses for a second day, pressured by a stronger USD and weak risk sentiment despite gold’s traditional haven appeal. Geopolitical tensions in the Middle East and Trump’s remarks on striking Venezuela failed to lift oil prices amid rising OPEC+ output and concerns over lower demand from a paused Fed rate cut and potential global trade war impacts.
Bitcoin drops for the third consecutive day to hit the lowest level since late April, while Wall Street reported a downbeat day and pressured the Asia-Pacific shares to edge lower.
U.S. equities fell sharply. The S&P 500 lost 65.91 points (-0.98%) to around 6,668, the Nasdaq slipped 0.9% to 22,691, and the Dow Jones fell 1.2% to 46,570. Final closes showed the Dow Industrial Average down 557.24 points (-1.18%) at 46,590.24, the S&P 500 down 61.70 points (-0.92%) at 6,672.41, and the Nasdaq down 192.51 points (-0.84%) at 22,708.07. Nvidia dropped $3.57 (-1.88%) to $186.60 and is now 13.82% below its high ahead of Wednesday’s earnings.
Tuesday’s economic calendar features U.S. ADP Employment Change and Factory Orders alongside ongoing Fed commentary, but market focus remains on broader risk catalysts for direction. With sentiment sour, the USD may continue its recent recovery, pressuring equities, cryptocurrencies, and gold. However, significant moves are unlikely ahead of key events, including Nvidia’s Q3 earnings, the U.S. monthly jobs report, and upcoming PMI data.
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