(Bloomberg) — A rally that put the stock market within a striking distance of its all-time highs struggled to gain a whole lot of traction ahead of next week’s Federal Reserve decision. Bitcoin halted its rebound. Bonds fell.
The S&P 500 barely budged. Bets on a Fed reduction remained intact despite a slide in jobless claims — a noisy reading that captured the Thanksgiving period. Meta Platforms Inc. jumped about 3.5% as Bloomberg News reported executives are considering budget cuts for the metaverse group. A gauge of small caps climbed almost 1%.
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Worries that the frenzy around artificial-intelligence has gone too far caused a recent wobble in equities. But the strong outlook for the sector and wagers that policy easing will fuel corporate profits bolstered hopes on further gains.
“The key question hanging over markets is whether a potential Federal Reserve rate cut next week can trigger a so-called Santa rally,” said Fawad Razaqzada at Forex.com. “For now, the S&P 500 forecast remains cautiously constructive, albeit with more hesitancy creeping in.”
The pattern for the first couple of weeks of December could prove far “choppier” than the last part of the month, noted Mark Newton at Fundstrat Global Advisors. With bets on a December rate cut rising to near certainty, he said we’re gradually seeing sectors like industrials, financials and small caps climbing.
The S&P 500 closed near 6,860. The yield on 10-year Treasuries rose four basis points to 4.1%. The dollar fluctuated. Bitcoin dropped below $93,000.
Given the equity market’s snapback from late November, technicals have improved to match some of the bullish seasonality thought possible for this month, Newton added. While trends are bullish, he says technicals support further choppiness until after the Fed decision.
“The market’s ‘risk-on’ light is on, led by expectations for a Fed rate cut next week and a broadening rotation down-cap,” said Craig Johnson at Piper Sandler. “But we still anticipate more ‘backing and filling’ as the major indices approach their year-to-date highs.”
While the S&P 500 has made limited progress so far this week, several previously broken levels have now been reclaimed, reinforcing the impression that the bulls maintain a degree of control, noted Razaqzada.
To Matt Maley at Miller Tabak, while the market has spent the past few days consolidating gains, the set-up is a good one.
“So unless we get a big reversal over the next few trading days, the advantage will definitely be with the bulls,” he said.
Maley notes that one area that could do well if we get a strong year-end rally is the small-cap space.
“A push to a new significant all-time high might finally attract the kind of momentum money that could help this part of the stock market outperform,” he said. “Of course, if the mega-cap tech stocks start to roll over in a big way, all bets will be off.”
At Interactive Brokers, Jose Torres noted that the cyclically oriented Russell 2000 is sustaining its recent momentum and is poised to rally in an environment of looser financial conditions alongside a still solid economy.
While the US tech sector is likely to remain a key driver for the market’s next leg up, its recent underperformance also points to other compelling opportunities across the market, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
“As we expect US equities to rally into 2026, we think under-allocated investors should add exposure,” she said. “Beyond the tech sector, we expect a good performance from the health care, utilities, and banking sectors to broaden the foundation for further gains.”
Hoffmann-Burchardi says the Fed’s easing path is supportive to equities and also creates a positive backdrop for quality bonds.
On the macro front, applications for US unemployment benefits fell last week to the lowest in more than three years, indicating that employers are still largely holding onto workers despite a wave of recent layoffs.
Separate data from Challenger, Gray & Christmas showed announced layoffs at US companies fell last month after surging in October, but were still the highest for any November in three years.
“Overall, the net takeaway from the data served to confirm the crosscurrents evident in the labor landscape,” said Ian Lyngen at BMO Capital Markets.
Policymakers will not yet have the government’s November jobs report in hand for their meeting next week. The report, originally due Dec. 5, was delayed until Dec. 16 as a result of the record-long government shutdown. That release will also include October payrolls figures.
“There remain some negative payroll employment readings. But the US labor market is not collapsing based on timely data and reports that have leading indicator properties,” said Don Rissmiller at Strategas. “We continue to believe the Fed will cut the fed funds rate again by 25 basis points in December.”
While investors are largely betting policymakers will cut rates again, officials have rarely been so divided as many still prefer leaving rates elevated to keep inflation in check.
Before their final policy meeting of the year, Fed officials will get a dated reading on their preferred inflation gauge. On Friday, the September income and spending report — long delayed because of the government shutdown — is due to be released.
The figures will include the personal consumption expenditures price index and a core measure that excludes food and energy. Economists project a third-straight 0.2% increase in the core index. That would keep the year-over-year figure hovering just below 3%, a sign that inflationary pressures are stable, yet sticky.
“We continue to expect two rate cuts by the end of the first quarter of 2026, with Friday’s personal consumption expenditure index likely to show price pressures under control,” said Hoffmann-Burchardi at UBS Global Wealth Management.
Corporate Highlights:
Meta Platforms Inc.’s Mark Zuckerberg is expected to meaningfully cut resources for building the so-called metaverse, an effort that he once framed as the future of the company and the reason for changing its name from Facebook Inc. Meta Platforms risks a temporary European Union ban on the rollout of new policies over how its AI features in WhatsApp, after being hit by the latest probe into Big Tech’s alleged dominance on the continent. Salesforce Inc. gave an outlook for revenue in the current period that topped analysts’ estimates, suggesting the software company is persuading customers to buy its AI tools. Snowflake Inc.’s forecast for sales and profit margin in the current quarter raised concerns the company isn’t yet making enough money from its AI-based tools. Dollar General Corp. raised its full-year outlook, showing how value-focused retailers are winning over consumers hunting for deals. Kroger Co. lowered the top end of its full-year sales forecast, sounding a note of caution that competition is intensifying among food sellers for increasingly discerning consumers. PepsiCo Inc. is nearing a settlement agreement with activist investor Elliott Investment Management, the Wall Street Journal reported Thursday, without providing details. Paramount Skydance Corp. accused Warner Bros. Discovery Inc. of failing to conduct a fair auction, saying the film and TV company isn’t acting in its shareholders’ best interests. Versant Media Group Inc., the company being spun off from Comcast Corp., is making acquisitions to diversify beyond its core business of cable-TV networks. Toronto-Dominion Bank, Bank of Montreal and Canadian Imperial Bank of Commerce all beat estimates on results that included strong performance in their capital-markets businesses, continuing a trend seen across other Canadian lenders and wrapping up a year marked by buoyant markets and more advisory work. Novo Nordisk A/S left open the door for additional work on its pill version of Ozempic for Alzheimer’s disease after a pair of failed trials, saying that patients showed a biological response in a handful of areas despite getting no cognitive improvement. Stellantis NV touted promising signs of a turnaround at its Ram and Jeep brands after adding powerful engines and more options for vehicles without a plug. Volkswagen AG plans to convert its small-scale assembly plant in Dresden into an innovation hub after stopping car output, following through on a pledge to avoid factory closures in Germany. Rio Tinto Group’s new chief executive will focus on cutting costs and selling assets in a bid to turn the world’s second largest miner into a slimmed-down operation centered primarily on iron ore and copper. Some of the main moves in markets:
Stocks
The S&P 500 rose 0.1% as of 4 p.m. New York time The Nasdaq 100 was little changed The Dow Jones Industrial Average was little changed The MSCI World Index rose 0.3% Bloomberg Magnificent 7 Total Return Index rose 0.5% The Russell 2000 Index rose 0.8% Meta rose 3.4% Currencies
The Bloomberg Dollar Spot Index was little changed The euro fell 0.2% to $1.1644 The British pound fell 0.2% to $1.3329 The Japanese yen was little changed at 155.10 per dollar Cryptocurrencies
Bitcoin fell 1.3% to $92,459.23 Ether fell 0.8% to $3,139.48 Bonds
The yield on 10-year Treasuries advanced four basis points to 4.10% Germany’s 10-year yield advanced two basis points to 2.77% Britain’s 10-year yield declined one basis point to 4.43% Commodities
Usually known more for pop anthems and extravagant costumes than for political disagreements, the Eurovision Song Contest is facing a major boycott after a push to eject Israel from the contest was rejected.
As Australia rides the AI boom with dozens of new investments in datacentres in Sydney and Melbourne, experts are warning about the impact these massive projects will have on already strained water resources.
Water demand to service datacentres in Sydney alone is forecast to be larger than the volume of Canberra’s total drinking water within the next decade.
In Melbourne the Victorian government has announced a “$5.5m investment to become Australia’s datacentre capital”, but the hyperscale datacentre applications on hand already exceed the water demands of nearly all of the state’s top 30 business customers combined.
Technology companies, including Open AI and Atlassian, are pushing for Australia to become a hub for data processing and storage. But with 260 datacentres operating and dozens more in the offing, experts are flagging concerns about the impact on the supply of drinking water.
Sydney Water has estimated up to 250 megalitres a day would be needed to service the industry by 2035 (a larger volume than Canberra’s total drinking water).
Cooling requires ‘huge amount of water’
Prof Priya Rajagopalan, director of the Post Carbon Research Centre at RMIT, says water and electricity demands of datacentres depend on the cooling technology used.
“If you’re just using evaporative cooling, there is a lot of water loss from the evaporation, but if you are using sealers, there is no water loss but it requires a huge amount of water to cool,” she says.
While older datacentres tend to rely on air cooling, demand for more computing power means higher server rack density so the output is warmer, meaning centres have turned to water for cooling .
The amount of water used in a datacentre can vary greatly. Some centres, such as NextDC, are moving towards liquid-to-chip cooling, which cools the processor or GPU directly instead of using air or water to cool the whole room.
NextDC says it has completed an initial smaller deployment of the cooling technology but it has the capacity to scale up for ultra-high-density environments to allow for greater processing power without an associated rise in power consumption because liquid cooling is more efficient. The company says its modelling suggests power usage effectiveness (PUE, a measure of energy efficiency) could go as low as 1.15.
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The datacentre industry accounts for its sustainability with two metrics: water usage effectiveness (WUE) and power usage effectiveness (PUE). These measure the amount of water or power used relative to computing work.
WUE is measured by annual water use divided by annual IT energy use (kWh). For example, a 100MW datacentre using 3ML a day would have a WUE of 1.25. The closer the number is to 1, the more efficient it is. Several countries mandate minimum standards. Malaysia has recommended a WUE of 1.8, for example.
But even efficient facilities can still use large quantities of water and energy, at scale.
NextDC’s PUE in the last financial year was 1.44, up from 1.42 the previous year, which the company says “reflects the dynamic nature of customer activity across our fleet and the scaling up of new facilities”.
Calls for ban on use of drinking water
Sydney Water says its estimates of datacentre water use are being reviewed regularly. The utility is exploring climate-resilient and alternative water sources such as recycled water and stormwater harvesting to prepare for future demand.
“All proposed datacentre connections are individually assessed to confirm there is sufficient local network capacity and operators may be required to fund upgrades if additional servicing is needed,” a Sydney Water spokesperson says.
In its submission to the Victorian pricing review for 2026 to 2031, Melbourne Water noted that hyperscale datacentre operators that have put in applications for connections have “projected instantaneous or annual demands exceeding nearly all top 30 non-residential customers in Melbourne”.
“We have not accounted for this in our demand forecasts or expenditure planning,” Melbourne Water said.
It has sought upfront capital contributions from the companies so the financial burden of works required “does not fall on the broader customer base”.
Greater Western Water in Victoria had 19 datacentre applications on hand, according to documents obtained by the ABC, and provided to the Guardian.
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The Concerned Waterways Alliance, a network of Victorian community and environment groups, has flagged its concerns about the diversion of large volumes of drinking water to cool servers, when many of the state’s water resources are already stretched.
Cameron Steele, a spokesperson for the alliance, says datacentre growth could increase Melbourne’s reliance on desalinated water and reduce water available for environmental flows, with the associated costs borne by the community. The groups have called for a ban on the use of drinking water for cooling, and mandatory public reporting of water use for all centres.
“We would strongly advocate for the use of recycled water for datacentres rather than potable drinking water.”
Closed-loop cooling
In hotter climates, such as large parts of Australia during the summer months, centres require more energy or water to keep cool.
Danielle Francis, manager of customer and policy at the Water Services Association of Australia, says there isn’t a one-size-fits-all approach for how much energy and water datacentres use because it will depend on the local constraints such as land, noise restrictions and availability of water.
“We’re always balancing all the different customers, and that’s the need for residential areas and also non-residential customers, as well as of course environmental needs,” Francis says.
“It is true that there are quite a lot of datacentre applications. And the cumulative impact is what we have to plan for … We have to obviously look at what the community impact of that is going to be.
“And sometimes they do like to cluster near each other and be in a similar location.”
One centre under construction in Sydney’s Marsden Park is a 504MW datacentre spanning 20 hectares, with six four-storey buildings. The CDC centre will become the largest data campus in the southern hemisphere, the company has boasted.
In the last financial year, CDC used 95.8% renewable electricity in its operational datacentres, and the company boasts a PUE of 1.38 and a WUE of 0.01. A spokesperson for the company says it has been able to achieve this through a closed-loop cooling system that eliminates ongoing water draw, rather than relying on the traditional evaporative cooling systems.
“The closed-loop systems at CDC are filled once at the beginning of their life and operate without ongoing water draw, evaporation or waste, ensuring we are preserving water while still maintaining thermal performance,” a spokesperson says.
“It’s a model designed for Australia, a country shaped by drought and water stress, and built for long-term sustainability and sets an industry standard.”
Planning documents for the centre reveal that, despite CDC’s efforts, there remains some community concern over the project.
In a June letter, the acting chief executive of the western health district of New South Wales, Peter Rophail, said the development was too close to vulnerable communities, and the unprecedented scale of the development was untested and represented an unsuitable risk to western Sydney communities.
“The proposal does not provide any assurance that the operation can sufficiently adjust or mitigate environmental exposures during extreme heat weather events so as not to pose an unreasonable risk to human health,” Rophail said.
Blue-collar workers and manufacturers want the Albanese government to stare down the gas giants as it designs a new gas reservation scheme, warning the industry’s preferred approach would fail to quickly contain prices.
The federal government is expected to unveil plans for an east coast gas reserve as soon as next week after a six-month review of the gas market.
After rubbishing Peter Dutton’s election promise to force gas exporters to divert supplies into the east coast market, Labor is preparing to launch its own intervention to avert potential supply shortages and contain prices for households and businesses.
The government is understood to still be weighing up a potential model as it faces competing demands from gas producers, unions and manufacturers.
The government is also sensitive to concerns from customers in Japan and South Korea, which are heavily reliant on Australian gas exports and have resisted past government interventions that they fear threaten supplies.
The gas industry and the federal Coalition insist the reservation policy must only apply to new gas projects. But unions and large energy users maintain any reservation must capture gas from existing projects, except for those already under contract for export.
Paul Farrow, the national secretary of the Australian Workers’ Union, said a policy that only applied to future projects would “achieve virtually nothing for anyone”.
“To shore up Australian industry for the 21st century, we need affordable gas reserved for domestic use right now – not years down the track,” said Farrow, whose union has campaigned for years for Labor to adopt the policy.
Manufacturing Australia, which represents large energy users including BlueScope Steel and Rheem, has argued an “effective” gas reservation scheme is critical to curtail the high gas prices that risk jobs in the sector.
“To be effective, gas reservation needs to put enough gas into the local market to see prices fall. In the short term, that means immediate reservation of uncontracted gas,” said Ben Eade, the chief executive of Manufacturing Australia.
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“In the medium term, we can grandfather existing export contracts, but reservation should apply to all new contracts, variations or renewals, any gas project expansions or variations and any new gas production from this point onward.”
Two models canvassed
The government has canvassed two models for a gas reservation in private consultation sessions with stakeholders over the past six weeks, two sources familiar with the development of the policy confirmed to Guardian Australia.
The first would create a system in which the three Queensland-based LNG exporters supply a prescribed amount of gas into the domestic market in exchange for export permits. The second option would require all gas producers – exporters and domestic-only producers – to supply a certain volume into the local market, the sources said.
The AWU wants the government to adopt the first option to directly target the exporters, which they say “broke the domestic market in the first place”.
East coast gas prices have tripled over the past decade after the major LNG export terminals linked the domestic market to international demand.
“Australian industry has been bleeding for over a decade while we’ve waited for the gas reservation scheme we desperately need,” Farrow said.
“The priority now is getting a simple, workable model in place urgently – not designing some elaborate credit trading system that the gas companies will find ways to exploit.”
The government would not confirm details of options under consideration when contacted by Guardian Australia.
“The government is conducting a review of the gas market. The government is committed to ensuring Australian homes and businesses get access to Australian gas at fair prices,” a spokesperson said.
Labor MP Ed Husic says it is a ‘real barbecue-stopper’ that foreign buyers are on-selling Australia’s gas. Photograph: Lukas Coch/AAP
A gas reservation scheme already exists for the separate Western Australian market, which requires exporters to supply the equivalent of 15% of LNG production to the local market.
The Labor MP and former industry minister Ed Husic wants his government to pursue even more drastic interventions, including cracking down on importers that on-sell Australian gas to third countries.
“It’s a real barbecue-stopper for many Australians that foreign buyers are on-selling our gas while we’re facing forecasts of local gas shortages,” Husic said.
The Greens are advocating a different approach to prevent domestic gas shortages, backing the Australian Council of Trade Union’s push for a 25% levy on LNG exports.
“Taxing gas will be much more effective way of keeping gas in this country and replacing the Petroleum Resources Rent Tax (PRRT) that’s broken and simply not bringing enough money,” said Steph Hodgins-May, the assistant climate spokesperson for the Greens.
