Overview
Predictably, thin year-end markets and holidays this week have triggered some sharp moves. Generalised US dollar selling took hold mid-week, led by the Swiss franc which gained 2.5%, closely followed by the Swedish krona. The Euro managed a high at $1.3110, its strongest since April 2005, and Cable $1.9350; the Singapore dollar, at S$1.5475 to its US counterpart, is at its strongest since November 1997; the Czech koruna, at 21.330 to the greenback is at its strongest ever. Needless to say this supplied a bid tone to commodities priced in dollars, grains and all metals nudging higher, and 3-month LME Nickel setting a new record at $33,300 per metric tonne. Money markets held steady at the levels of the last month, but fixed income yields are declining and many are testing pivotal support with long-dated paper leading the way. Stock markets were very mixed, some like Hong Kong, Jakarta, Mexico, Singapore and Toronto setting new record highs, while many European ones retreated (admittedly after rallying steadily for weeks) and are now testing 50-day moving averages.
Political and Economic Developments
Mixed results in the Dutch general election as the Christian Democrats are re-elected without an overall majority. Mr. Balkenende now has to form a coalition government, possibly a ‘grand’ one as Angela Merkel was forced to do in Germany exactly a year ago. German business confidence surged in November, the IFO Survey hitting a 15-year high of 106.8. Whether this will continue after VAT is raised from 16% to 19% in January, knowing that 40% of workers expect a smaller Christmas bonus (or none at all) this year, is key. A stronger Euro will not help exports. Minutes from the Bank of England’s November MPC meeting surprised because deputy governor Rachel Lomax, who many consider a ‘hawk’, joined professor Blanchflower in calling for no change in rates as all others opted for a 25 basis point increase. Like him she is concerned with the ‘slack’ in the labour market and restrained wage growth.
Underlying Themes
US Celebrities, companies and the guilty are rushing to donate turkeys and their time, as well as $1 bills, to the needy. The Salvation Army sends out 25,000 volunteers to rattle tins this month and has, over the last 9 years, collected over 900 million dollars. Coinciding with the goodwill and the good cheer, and the Christmas shopping rush that starts there today, the Coalition Against Hunger estimates that in New York city 15.4% of the population regularly, and especially between pay checks, rely on charity to feed their families. Those using soup kitchens are up 11% this year. Meanwhile Forbes magazine estimates there are 34 (home grown) billionaires living in Manhattan, more than in any other city. London, Moscow and San Francisco have 20 apiece.
What to watch for next week
Sunday 26th the final round of Ecuador’s presidential elections: left-wing economics professor versus banana tycoon. A busy week numbers-wise focusing on sentiment and housing. Monday early Japanese October Corporate Service Prices, German Retail Sales due from this day, and UK Mortgage Lending. Tuesday Japan’s October Retail Trade, Germany’s December GfK Consumer Confidence, E12 October M3, US Durable Goods Orders and Existing Home Sales, plus November’s Consumer Confidence. Wednesday Japanese October Industrial Production, UK Consumer Credit, revised US Q3 GDP, US October New Home Sales and the Fed’s Beige Book. Thursday Japan’s October Housing Starts, Construction Orders and November’s Small Business Confidence. Then German October ILO Unemployment, Eurozone November Business Climate, Confidence, CPI and Q3 GDP. UK November GfK and CBI Distributive Trades Surveys, US October Personal Income and Spending, PCE Deflator, Help Wanted Index and November’s Chicago Purchasing Managers. Friday, the 1st December, Japan’s October Jobless and Job-to-Applicant ratio, Household Spending, National CPI and Tokyo’s November CPI. November Manufacturing PMI’s for the different European states, E12 October Unemployment, US Construction Spending and November’s Manufacturing ISM, plus vehicle sales late in the day.
Positioning and Technical Analysis
Remember, thin markets can cause explosive moves and it is exactly one month to Christmas. Bonds again will probably be the most interesting with prices likely to explode higher and yields collapsing to historically very low levels; more inversion will result. Exchange rates are likely to make headlines as multi-year levels are broken or established. Generalised US dollar weakness should continue and might gather considerable speed. Stock markets should consolidate at current levels but again, because of year-end concerns there is a chance of further sudden slippage. As always, the higher they climb the harder they fall. The energy group is likely to continue with its painfully slow attempt at forming an interim base, the shrinking greenback supplying an underlying bid. Likewise metals.
Have a nice weekend!
