Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 10 Oct - Nvidia holds up Nasdaq as stocks retreat, sterling has worst week since Jan as dollar advances and gold falls below $4k
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Key Points
- Gold slips below $4k after hitting record high, silver tops $50 for first time
- Dollar rally continues as sterling heads for worst week since January
- Nvidia rally supports Nasdaq as Wall Street retreats
- Traders eye Japan and France political moves
Let’s start this one with how we started the week by looking at France and Japan. Retreating French bond yields, with the 10yr down to 3.50% this morning from 3.60% earlier in the week and the spread with the bund back to where it was Monday AM, reflects less immediate sense of crisis for the Macron regime as he is set to name a new prime minister this evening. What’s the French for ‘trying the same thing and expecting a different result’? New elections are inevitable.
Meanwhile Japan’s political situation got a little more complicated as the Komeito party quit the ruling coalition just days after Takaichi Sanae was elected LDP leader and prime minister. Could it require fresh elections? The yen is stabilising a bit this morning - maybe less immediate chance of stimulus - after a bruising week saw it retreat to its weakest since February vs the dollar, which is looking a lot more MAGA.
Sterling too is under the cosh, set for its worst week since January. It was roundly offered yesterday afternoon and under more pressure today as it wrestles with the 1.33 level support. Looks to be a fair amount of support around this region from a bull flag in August and it's the last key Fib retracement level of the Jul-Aug decline. Below here we can see 1.3140, the low hit on both 12 May and 1 August. This is not just sterling weakness – DXY has risen clear of the 99 level, touching 99.43 on a broad snapback in the short dollar trade as some speculative shorts seem be getting squeezed. BofA message is tactical long US dollar is the “smart play to hedge risk that subprime consumer contagious”. (remember top 10% of US consumers account for 50% of consumption). The excuse for the dollar to rally seems to be it’s the least ugly sister of the yen (stimulus + new political chaos as the Komeito party quits the ruling coalition), euro (French political deadlock and onerous fiscal position) and sterling (moribund economy and invidious fiscal position).
A basket of bad news for the UK is not exactly helping – weakest wage growth in 4 years, Hays numbers bad, retail footfall down and Niesr tells the Chancellor that a 3p hike in income tax would be a good idea to plug the fiscal black hole. On top of that the ONS keeps revealing itself to be a bit of a shambles (see yesterday’s £2bn borrowing error), which is not helping.
Stocks came off their highs yesterday as equity markets took a bit of a check. Hardly major moves - the S&P 500 slipped nearly a third of a percent, while the Nasdaq was barely lower at –0.08% with Nvidia holding up the index with a gain of 1.83% after the US government gave approval to ship chips to the UAE, whiel Meta gained as it is considering creating a dedicated TV app. The Dow Jones and Russell 2k were down about half a percent for the session. Still it feels like we’re are still in the grind-up phase and yesterday was more about a little rotation than anything else. Treasury markets seem pretty stable but we should watch the stronger dollar as a potential drag on risk. Oh and the China rare earths curbs exposes potential trade war concerns with the US-China truce expiring 10 November.
Over here, the FTSE 100 fell 0.41% yesterday, coming off a record high to close at 9,509. Early Friday the index dipped a bit further and was wrestling with the 9,500 support as European equity indices turn higher. Mining stocks – which have been a great play all year – are taking some medicine on the pullback in gold below $4k as well as softer copper, which has retreated after a spike higher yesterday failed. Defence stocks are being offered perhaps on peace dividend from Gaza deal. Asia was a bit mixed overnight with pressure on tech hitting Hong Kong (-1.7%) and Tokyo (-1%) while Seoul jumped to a record high as it played catch-up following a holiday.
Silver stallion: Silver hit a record high, breaking $50 for the first time. It’s a big level. After the Hunt brothers’ crazy foray into (becoming) the market it approached this level in 1980 before it fell 90%, and in 2011 it tumbled 71% before bottoming after approaching this level. Silver is no longer cheap relative to gold, with the gold-silver ratio now back to around its ten-year average around 80 ounces of silver to one ounce of gold. The 20yr average is about 70x.
Gold has pulled back below the $4k level as it appears to have a bit of vertigo after an extremely rich rally – weekly RSI above 81 - so I wonder if there is a little further to unwind? Long term it still looks good. BofA notes that "still few structurally long gold", and the average gold jump past 4 bull markets is about 300% in 43 months ... so $6k peak next spring? Front running the next Fed chair is part of the story expecting looser monetary policy - Treasury Secretary Scott Bessent wrapped up the first round of interviews for the next Fed chair this week. But for now some profit taking/consolidation - also as discussed yesterday the peace dividend factor for gold is something to consider as some of the geopolitical risk premia that’s been in the price is removed.
Finally, a new meme stock ETF has launched – actually a reboot of one launched in 2021 when the Nasdaq topped. I took a look at this yesterday. Fair enough if fruity valuations and insane volatility is what you want...one to trade, not invest? Is that a sign we’re near the top? Its first launch in 2021 coincided with the top for the Nasdaq Composite - by the time the ETF closed two years later the index was down about 10%. One of its top holdings is Applied Digital, which jumped massively in post-market trading last night after the data centre company reported better-than-expected results for the last quarter. Nvidia and CoreWeave are among its shareholders. It posted $64.2 million in revenues, well ahead of the estimated $46.1 million.
Next week - the US government may remain in shutdown but bank earnings are in full swing to provide a clear health check of the US economy and consumer.
Meanwhile Japan’s political situation got a little more complicated as the Komeito party quit the ruling coalition just days after Takaichi Sanae was elected LDP leader and prime minister. Could it require fresh elections? The yen is stabilising a bit this morning - maybe less immediate chance of stimulus - after a bruising week saw it retreat to its weakest since February vs the dollar, which is looking a lot more MAGA.
Sterling too is under the cosh, set for its worst week since January. It was roundly offered yesterday afternoon and under more pressure today as it wrestles with the 1.33 level support. Looks to be a fair amount of support around this region from a bull flag in August and it's the last key Fib retracement level of the Jul-Aug decline. Below here we can see 1.3140, the low hit on both 12 May and 1 August. This is not just sterling weakness – DXY has risen clear of the 99 level, touching 99.43 on a broad snapback in the short dollar trade as some speculative shorts seem be getting squeezed. BofA message is tactical long US dollar is the “smart play to hedge risk that subprime consumer contagious”. (remember top 10% of US consumers account for 50% of consumption). The excuse for the dollar to rally seems to be it’s the least ugly sister of the yen (stimulus + new political chaos as the Komeito party quits the ruling coalition), euro (French political deadlock and onerous fiscal position) and sterling (moribund economy and invidious fiscal position).
A basket of bad news for the UK is not exactly helping – weakest wage growth in 4 years, Hays numbers bad, retail footfall down and Niesr tells the Chancellor that a 3p hike in income tax would be a good idea to plug the fiscal black hole. On top of that the ONS keeps revealing itself to be a bit of a shambles (see yesterday’s £2bn borrowing error), which is not helping.
Stocks came off their highs yesterday as equity markets took a bit of a check. Hardly major moves - the S&P 500 slipped nearly a third of a percent, while the Nasdaq was barely lower at –0.08% with Nvidia holding up the index with a gain of 1.83% after the US government gave approval to ship chips to the UAE, whiel Meta gained as it is considering creating a dedicated TV app. The Dow Jones and Russell 2k were down about half a percent for the session. Still it feels like we’re are still in the grind-up phase and yesterday was more about a little rotation than anything else. Treasury markets seem pretty stable but we should watch the stronger dollar as a potential drag on risk. Oh and the China rare earths curbs exposes potential trade war concerns with the US-China truce expiring 10 November.
Over here, the FTSE 100 fell 0.41% yesterday, coming off a record high to close at 9,509. Early Friday the index dipped a bit further and was wrestling with the 9,500 support as European equity indices turn higher. Mining stocks – which have been a great play all year – are taking some medicine on the pullback in gold below $4k as well as softer copper, which has retreated after a spike higher yesterday failed. Defence stocks are being offered perhaps on peace dividend from Gaza deal. Asia was a bit mixed overnight with pressure on tech hitting Hong Kong (-1.7%) and Tokyo (-1%) while Seoul jumped to a record high as it played catch-up following a holiday.
Silver stallion: Silver hit a record high, breaking $50 for the first time. It’s a big level. After the Hunt brothers’ crazy foray into (becoming) the market it approached this level in 1980 before it fell 90%, and in 2011 it tumbled 71% before bottoming after approaching this level. Silver is no longer cheap relative to gold, with the gold-silver ratio now back to around its ten-year average around 80 ounces of silver to one ounce of gold. The 20yr average is about 70x.
Gold has pulled back below the $4k level as it appears to have a bit of vertigo after an extremely rich rally – weekly RSI above 81 - so I wonder if there is a little further to unwind? Long term it still looks good. BofA notes that "still few structurally long gold", and the average gold jump past 4 bull markets is about 300% in 43 months ... so $6k peak next spring? Front running the next Fed chair is part of the story expecting looser monetary policy - Treasury Secretary Scott Bessent wrapped up the first round of interviews for the next Fed chair this week. But for now some profit taking/consolidation - also as discussed yesterday the peace dividend factor for gold is something to consider as some of the geopolitical risk premia that’s been in the price is removed.
Finally, a new meme stock ETF has launched – actually a reboot of one launched in 2021 when the Nasdaq topped. I took a look at this yesterday. Fair enough if fruity valuations and insane volatility is what you want...one to trade, not invest? Is that a sign we’re near the top? Its first launch in 2021 coincided with the top for the Nasdaq Composite - by the time the ETF closed two years later the index was down about 10%. One of its top holdings is Applied Digital, which jumped massively in post-market trading last night after the data centre company reported better-than-expected results for the last quarter. Nvidia and CoreWeave are among its shareholders. It posted $64.2 million in revenues, well ahead of the estimated $46.1 million.
Next week - the US government may remain in shutdown but bank earnings are in full swing to provide a clear health check of the US economy and consumer.
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