Fed's Waller inches open the US rate cut door
Friday was one of the four ‘triple witching’ occasions of 2015 (expiration of stock index futures, index options and individual share options) –sometimes known as freaky Friday.
A big ‘risk-off’ night Friday with US stock indices off around 2% and the VIX adding back 1.76 to trade back above 20 (20.7). Friday was one of the four ‘triple witching’ occasions of 2015 (expiration of stock index futures, index options and individual share options) –sometimes known as freaky Friday – and which may have had the effect of pushing stocks further in the (southerly) direction they were already headed.
On the week the S&P was off just 0.34%. No real news drivers for Friday’s price action and where losses were sector wide (led by financials) but which clearly represented a reversal of the positive stride with which Wednesday’s Fed announcements were taken.
US Treasury yields fell in a bull-steepening session: 2s -3.2bps to 0.9388%, 5s -2.6bps to 1.6762%, 10s -1.9bps to 2.2040% and the 30-year -0.6bp to 2.9220%.
In FX, the US dollar gave back Thursday’s gains, the DXY -0.58% to 98.69, BBDXY -0.39% and the ADXY adding back 0.23%. Yet again the euro demonstrated its tendency to rise when risk aversion strikes, EUR/USD +0.41% to 1.0870. The yen fared even better so reversing the initial weakness seen on Friday’s BoJ policy announcements which – all up – are seen as improving the BoJ’s ability to keep fulfilling its current QQE policy but not really enhancing it. USD/JPY was -1.16% to Y121.16.
A little surprising perhaps to see AUD pulling back up so much given risk-aversion and higher volatility, but a bounce in commodity prices (ex-oil) and the generally softer dollar offered support, AUD/USD +0.65% to 0.7175. NZD +0.39% to 0.6727 while CAD weakened amid further oil price weakness, USD/CAD +0.11% to 1.3953 having earlier broken above 1.40 for the first time since June 2004.
In commodities, both WTI and Brent lost another 40 cents, to $34.55 and $36.66 respectively. Both are 3% down on a week ago. Hard commodities in contrast benefited from the softer dollar, the LMEX index of traded metals +2.55%, iron ore 1.7% to $40.10 and gold +$15 to $1066 (still $20 lower on the week).
FX market positioning data as reflected in IMM/CFTC data released Friday for the w/e Tuesday Dec 15 (so up to 24 hours before the Fed announcement) shows overall speculative long dollar positioning scaled back significantly after only a small reduction in the prior (ECB) week. Overall speculative dollar longs vs. G10 currencies fell to 261.9k from 352.8k, (a contraction of over 25%). Paring of JPY, AUD and CHF shorts led the decline. JPY came in to -26.6k from -68.1k and AUD to -10.5k from -33.6k. A month ago the latter was -66.5k. EUR shorts still large, at -160k from -172.3k, GBP -16.9k in from -23.9k, CAD out to -51.0k from -39.0k, NZD +1.1k down from +8.9k and CHF +2.0k from -24.8k.
In economic news Friday, the US Markit services PMI fell to 53.7 from 56.1k and 55.9 expected, pulling their composite reading down to 53.5 from 55.9k.
Canada’s November CPI printed -0.3% for core m/m against 0.0% expected, so y/y fell to 2.0% from 2.1% and 2.3% expected.
CoreLogic RP Data’s weekend auction statistics for what is the last auction weekend of the year, showed the nationwide average clearance rate improved to 60.5% from 58.2% but down on the same weekend of 2014 (63.6%). Sydney cleared 60.3% up from 54.7% the prior weekend and 74.5% a year ago while Melbourne cleared 66.7% up from 64.9% previously and 63.6% this time last year.
Today sees New Zealand net migration (08:45 AEDT), the UK CBI retail sales survey and – perhaps of some interest following Friday’s BoJ kerfuffle, – the Japan Cabinet Office economic report for December.
As is typically the case, Australian data releases take a break over the Christmas-New Year period apart from RBA credit on New Year’s Eve. Then it’s the trade balance, building approvals and retail sales the first week of January
China has November property prices on Tuesday (that may show the sector, at a nationwide average level – pulling further up out of deflation). After that, the official PMIs come out on New Year’s Day (the Gregorian calendar version) and the Caixin PMIs on 4 January.
The US data highlights should be personal income and spending and PCE deflators, durable goods orders, new home sales, and consumer sentiment – all on Thursday. ISM manufacturing and payrolls come in the first week of January.
Japan has CPI (and labour market data) on Christmas Day (in years past, the BoJ has actually changed rates on this day)
Eurozone has consumer confidence today. Canada sees monthly GDP and retail sales on Thursday.
On global stock markets, the S&P 500 was -1.80%. Bond markets saw US 10-years -1.94bp to 2.20%. On commodity markets, Brent crude oil -0.49% to $36.88, gold+1.5% to $1,066, iron ore +1.7% to $40.10. AUD is at 0.7177 and the range since Friday’s local close has been was 0.7119 to 0.7196.
For full analysis, download report:
• Markets Today: 21 December 2015 (PDF, 270KB)
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