Markets Today: Seasons Greetings

As the markets quieten down for the holiday break, we reflect on the tumultuous year we’ve just been through: Trump, Brexit, the rise of far-right politics and the tide of anti-immigration fervour.

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The market still wants to own dollars as it winds down into Christmas and the New Year period.  On the currency front overnight, the USD is still the pick of the bunch, the Bloomberg spot BBDXY dollar index up 0.28%.  Faring less well have been the AUD – having tested and currently trading almost right on 0.72 – and Sterling, cable trading with a 1.22 handle, at 1.2286 this morning on what will invariably be a light day for trade.

Also faring less well has been the loonie in the wake of mixed news with a softer-than expected CPI but a perky retail sales report.  USD/CAD did trade down to 1.3470 after earlier testing above 1.35, but is back trading almost right on the figure.

The US data set released overnight was a mixed bag.  While US Q3 GDP was revised up to an annualised 3.5% rate from 3.2% and core durable goods orders were a little better than tipped in November (0.9% against 0.4% that was the consensus), the November personal income, spending and PCE deflators report far from shot the lights out.  Income growth was flat and consumer spending rose a tenth less than expected at 0.2%, down from 0.4%, though in lower-than-expected inflation–adjusted terms, consumer spending managed the second month of a measly 0.1% rise.

In the wake of the US data, the Atlanta Fed’s GDPNow estimate for Q4 was shaded lower to 2.5% from 2.6%.

The PCE deflators were lower than expected, headline up 0.1%/1.4% (against consensus of 0.2%/1.5%) while the core PCE deflator was flat m/m, up 1.6% against 0.1%/1.7%.  It did however seem to slow some small-scale selling of bonds, even if US Treasury yields are a little higher on net into the close of the session, 2s at 1.192% (+0.4bps) and 10s at 2.552% (+2.5bps).  Fed funds futures are pricing for 60bps of rate hikes in total over the course of 2018, pricing in that the next rate hike might not occur until the May 3 meeting, where 14.8bps of hikes is priced for, that meeting the third of the year.

Commodity markets overnight have seen oil higher, base metals mixed (copper up smalls, nickel and ally down similarly), gold also off slightly, while iron ore was down $3.04/t to $76.15.

The market still wants to own dollars as it winds down into Christmas and the New Year period.  On the currency front overnight, the USD is still the pick of the bunch, the Bloomberg spot BBDXY dollar index up 0.28%.  Faring less well have been the AUD – having tested and currently trading almost right on 0.72 – and Sterling, cable trading with a 1.22 handle, at 1.2286 this morning on what will invariably be a light day for trade.

Also faring less well has been the loonie in the wake of mixed news with a softer-than expected CPI but a perky retail sales report.  USD/CAD did trade down to 1.3470 after earlier testing above 1.35, but is back trading almost right on the figure.

The US data set released overnight was a mixed bag.  While US Q3 GDP was revised up to an annualised 3.5% rate from 3.2% and core durable goods orders were a little better than tipped in November (0.9% against 0.4% that was the consensus), the November personal income, spending and PCE deflators report far from shot the lights out.  Income growth was flat and consumer spending rose a tenth less than expected at 0.2%, down from 0.4%, though in lower-than-expected inflation–adjusted terms, consumer spending managed the second month of a measly 0.1% rise.

In the wake of the US data, the Atlanta Fed’s GDPNow estimate for Q4 was shaded lower to 2.5% from 2.6%.

The PCE deflators were lower than expected, headline up 0.1%/1.4% (against consensus of 0.2%/1.5%) while the core PCE deflator was flat m/m, up 1.6% against 0.1%/1.7%.  It did however seem to slow some small-scale selling of bonds, even if US Treasury yields are a little higher on net into the close of the session, 2s at 1.192% (+0.4bps) and 10s at 2.552% (+2.5bps).  Fed funds futures are pricing for 60bps of rate hikes in total over the course of 2018, pricing in that the next rate hike might not occur until the May 3 meeting, where 14.8bps of hikes is priced for, that meeting the third of the year.

Commodity markets overnight have seen oil higher, base metals mixed (copper up smalls, nickel and ally down similarly), gold also off slightly, while iron ore was down $3.04/t to $76.15.

Coming up

With markets winding down for Christmas and into the end of the year lull, it’s a quiet data/event schedule with little to nothing in the Asia time zone.  Tonight though sees US New Home Sales for November that might draw some interest should sales show any material adverse reaction to the back up in bond yields (and mortgage rates) in the lead up to and since the Presidential election.  There’s also the final December UoM Consumer Sentiment survey with its consumer inflationary expectations.

Christmas-New Year schedule:  It’s pretty quiet for the next week for major known events that don’t really kick off in earnest until the first week of January with the ISMs/PMIs and payrolls, followed by Chinese Q4 GDP and December activity data the week after.

Overnight

On global stock markets, the S&P 500 was -0.19%. Bond markets saw US 10-years +1.85bp to 2.55%. In commodities, Brent crude oil +1.01% to $55.01, gold -0.2% to $1,129, iron ore -3.8% to $76.15, St. Coal -0.2% to $86.75, Met. Coal untraded at $270.00. AUD is at 0.7209 and the range since yesterday 5pm Sydney time is 0.7198 to 0.7239.

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Disclaimer

Enclosed on page three is the calendar for the next two weeks to carry it through until Monday 9 January when the Markets Today will start up again.  This morning was also the final Podcast for the year. 

 As always we appreciate feedback and, on behalf of our team and colleagues, we wish everyone a Merry Christmas and all the best for the New Year and a successful 2017.  Good luck to all our readers – and listeners to the Podcast – and be sure to take a restful break with friends and family.  ****