By Ahmad Assiri, Research Strategist at Pepperstone
Markets are trading this week against a backdrop shaped by a blend of seasonal optimism in US equities and continued market conviction that the Fed is heading toward a near certain rate cut next week. A deviation from this path would be a genuine surprise for markets.
At the same time, the internal split within the FOMC is becoming more pronounced, with expectations that three to four members may dissent, a level of opposition not seen in decades among US monetary policymakers. In parallel, gold has attracted supportive buying interest to near the upper boundary of its smaller price channel, practically showing a defensive tone coexisting with easing expectations.
Meanwhile, Saudi Arabia continues to follow an explanatory fiscal approach in the newly announced 2026 budget, forecasting a planned deficit of 165 billion riyals to sustain expansionary spending while maintaining high oil production levels to support fiscal stance.
In US equities, the usual core of market coverage, December began on a relatively stable footing to date, aligning with investors’ attention to lock in November’s levels while awaiting next week’s Fed rate decision and forecasts. Sentiment remains anchored by a broad belief that a rate cut is a calculated step and that the Fed is unlikely to risk unsettling markets at a time when data shows gradual cooling particularly in the labor market. Still, markets are also absorbing the fact that the internal divide is widening, meaning the tone of the statement and the vote distribution could influence treasury yields, the dollar and market direction after the December meeting and into the new year 2026.
In the gold market, price action continues to signal strong underlying support, especially as it nears moving averages that have consistently acted as worthy to be watched floors this year, alongside technical levels that encourage some caution when prices deviate too far above them in recent weeks. This resilience reflects a blend of monetary easing expectations, currently the dominant driver, and cautious positioning ahead of key data and the likelihood of division within the Fed. Additionally, discussions about the rising probability of Kevin Hassett replacing Powell at the Fed have also bolstered expectations of a deeper easing cycle ahead offering.
Turning to Saudi Arabia’s fiscal landscape, the 2026 budget remains broadly aligned with expectations and appears to be a continuation of trends from previous quarters. The projected 165 billion Riyal deficit reflects a notable reduction from the updated deficit estimate for 2025, signaling the government’s commitment to managing expenditure while preserving investment momentum to support growth under its 2030 vision especially in major strategic projects.
Public debt remains under 30% of GDP, comfortably within the upper bound of what is considered manageable for emerging economies, giving Saudi Arabia flexibility to finance future priorities with acceptable fiscal pressure. Still, the link between public finance and oil prices remains central, with the breakeven price estimated near $94 per barrel, making OPEC+ policy and global demand conditions key variables in sustaining the targeted deficit range.
It is easy to look at today’s oil price around $62 per barrel and conclude that the gap is too large to be covered by oil revenues alone, which is technically accurate, but only from a narrow perspective. Non-oil revenues now represent nearly half of total government income and debt financing or refinancing offers additional flexibility. In numerical terms, the expected deficit for next year represents roughly 3.3% of GDP, pretty decent even for developed economies.
On the oil front, prices sit at low levels relative to the economic cycle placing the market in a sensitive position between subdued demand and elevated supply. Within this context, OPEC+ decisions to raise production several times this year were striking in timing and can be described as bold given current prices. The moves reflect the group’s conviction that fundamentals will improve in 2026, supported by expectations of better global economic growth.
This forward looking stance is central to the OPEC+ thesis that current price pressures are not structural but rather tied to a relatively short global growth slowdown. And while higher production has weighed on prices, the group’s recent decision to pause further increases signals its continued ability to manage internal conflicts. The newly created mechanism to measure and adjust production between members reinforces the impression that they stand ready to intervene if material unwelcome additional declines occur. Against this backdrop, prices today appear closer to stabilisation than further downside, especially if global growth data through late 2025 and into 2026 aligns with the optimistic projections underpinning recent production policies.
Looking ahead, markets now turn to important data capable of shifting narrative. Today, the US services PMI is due, expected to remain in expansion territory which may offer some comfort after the notably weak manufacturing reading earlier this week. On Friday comes the more sensitive test, Core PCE, the Fed’s preferred inflation gauge, expected around 2.8%. A material deviation from this range could possibly affect rate cut expectations ahead and by extension movements in the dollar, gold and equities.