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As the year comes to a close, with just about two weeks left, I’ve decided to take some time away from the free daily commentary I provide. Today’s edition will be the last one for 2025, and I will return starting on Sunday, January 4. Paid members will continue to receive the daily midday videos and write-ups. It has been another long year, and for some reason, I feel more worn out this year than usual.
That said, I’m not the type to leave anyone hanging. I know many of you look forward to reading my thoughts, so if something significant is happening in the market, I’ll be more than happy to return sooner.
This week will be anything but boring. On Thursday morning, we have rate decisions from the ECB and the BOE, followed by the BOJ on Thursday evening into Friday. There is likely to be plenty of news flow, and with NikkeiAsia already reporting that the BOJ is set to raise rates for the first time in 11 months, a decision not to hike would be a major surprise. Historically, news has tended to leak ahead of BOJ meetings, limiting surprises. In addition, Reuters has reported that the BOJ is likely to pledge to continue raising rates.
If that proves to be true, it could have a significant impact on the yen. And if the USD/JPY five-year forward chart is correct—and a bull flag is indeed forming—then a breakout in the forward rate would suggest a meaningfully stronger yen lies ahead.
Meanwhile, over the past week, there has been increasing discussion about the ECB potentially raising its growth forecast and the possibility of rate hikes in 2026. This meeting could help frame that debate. Such a shift would be meaningful and would likely support a stronger euro if it were to materialize, and perhaps more importantly, higher interest rates across Europe.
Notably, the Italian 10-year yield chart appears to be forming an inverse head-and-shoulders pattern and is approaching a break of a short-term downtrend. If improved growth prospects and the potential for future rate hikes are mentioned, a breakout in the Italian 10-year yield becomes increasingly plausible.
Let’s not forget this week we also have the Bank of England meeting on Thursday morning. A rate cut is widely expected, but the bigger question is what comes after. Inflation in the UK remains elevated, while growth is essentially nonexistent, creating a genuine stagflation challenge.
The BOE can continue cutting rates if it chooses, but that may come at the expense of the 10-year gilt. The 10-year yield appears to have formed a large ascending triangle pattern, and a breakout looks increasingly likely in the near term.
Additionally, the US jobs report is on Tuesday, with payrolls expected to increase by just 40,000 in November and the unemployment rate projected at 4.4%. Revisions will matter, though. Then on Thursday, the November CPI report is due, with both headline and core inflation expected to rise 0.3% month over month and 3.0% year over year.
The 30-year Treasury yield broke out on Friday, moving above resistance and its downtrend near 4.8%. I still believe it is heading toward 5%, possibly even by the end of the coming week. If global interest rates are poised to rise, it will be difficult for U.S. rates not to follow, regardless of whether the Federal Reserve cuts.
We are at an important point in the cycle for the yield curve. It is clear that the curve is steepening, and historically—going back to 1955—periods of yield-curve steepening have not been favorable for the stock market. This has been true during both bull and bear steepeners, whether in more recent history or in the periods before 1980.
Based on where the 10-year minus 3-month spread currently stands, there appears to be substantial additional steepening still ahead.
This week is also opex, and if the S&P 500 falls below 6,800, there isn’t much support below it. The put wall doesn’t even kick in until 6,500. If the bull can’t get together and defend 6,800 on Monday, the index will most likely flip into a negative-gamma regime and heading sharply lower.
(optioncharts.io)
The technical chart essentially confirms what the options market is saying.
See you in 2 weeks.
-Mike
Glossary by ChatGPT
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Ascending Triangle – A bullish technical pattern defined by rising lows and horizontal resistance, often preceding a breakout.
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Bank of England (BOE) – The United Kingdom’s central bank, responsible for monetary policy and financial stability.
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Bank of Japan (BOJ) – Japan’s central bank, which sets monetary policy and manages currency and financial system stability.
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Bull Flag – A continuation chart pattern that signals consolidation before a potential upward price breakout.
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European Central Bank (ECB) – The central bank for the eurozone, responsible for setting monetary policy for member countries.
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Gilt – A U.K. government bond issued by the British Treasury.
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Inverse Head-and-Shoulders – A bullish reversal pattern indicating a potential transition from a downtrend to an uptrend.
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Negative Gamma – An options market condition where dealer hedging can exacerbate price moves rather than dampen them.
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Opex (Options Expiration) – The date when listed options contracts expire, often associated with increased market volatility.
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Put Wall – A price level with heavy put option open interest that can act as temporary market support.
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Stagflation – An economic environment characterized by low growth and high inflation occurring simultaneously.
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USD/JPY Five-Year Forward – A forward exchange rate contract reflecting expected currency levels five years in the future.
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Yield Curve Steepening – A widening difference between long-term and short-term interest rates, often signaling changing economic expectations.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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