Christmas week not normally a volatility barn-burner, though the following two weeks are often seasonally critical


MAJOR HEADLINES – PREVIOUS SESSION

  • Japan Nov. Adjusted Merchandise Trade Balance out at ¥492.4B vs. ¥268B expected 

  • Australia New Motor Vehicle Sales rose 15.8% YoY vs. 3.3% in Oct. 

  • New Zealand Nov. Credit Card Spending rose 1.6% YoY vs. -0.3% in Oct. 

  • Canada Oct. Retail Sales out at +0.8% MoM and +0.2% less Autos, vs. 0.8/+0.3% expected, respectively

  • US Nov. Chicago Fed National Activity Index out at -0.32 vs. -1.02 in Oct. 


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • New Zealand Q3 Current Account Balance (2145) 

  • Japan Dec. Small Business Confidence (0500) 

Market Comments:

The USD rally has consolidated a bit, but remains on the strong side despite the attempts by the equity market to surge back towards the highs for the year. Clearly we have broken the previously tight correlation between the USD and risk markets over the last few weeks. The first couple of weeks of the New Year will help tell us whether this decoupling is of a more permanent nature.

GBP weaker on Goldman threat? The pound somehow managed to stay on the strong side of the Euro recently despite the alarming threats of the UK government to get aggressive on banker bonuses. The focus on the European credit situation and Greece apparently trumped this story. But a story out this morning that Goldman is threatening to move a considerable portion of its staff out of London to Spain finally seems to have gotten the market's attention on the GBP-negative implications of the government getting too tough on the one industry that has been an undeniably huge driver of UK prosperity in cycles past. e

Chart: EURGBP EURGBP had been trying to break down through the 200-day moving average last week, but the pair never managed to close below that MA (now around 0.8870), nor has it yet fully threatened the key line of support around 0.8830 that stretches back to August. 

EURGBP

JPY remains on the weak side After last week's declaration of war on deflation, the JPY remains on the weak side, and the weak JPY argument was bolstered a bit more by US long bond yields continuing to rise into today's opening. Japan's trade data is theoretically encouraging for the Japanese economy as the economy is leveraged to any external improvements. but the power of yield differentials and capital flows seems to be impressing the market more at the moment. The Japanese Small Business Confidence data is out in Asia's Tuesday session and has enjoyed a sharp rebound to the highest level since well before the trauma of last fall.

What's up with CAD? Canada strengthened sharply against the market this morning - apparently on continued unwinding of overgeared bets on its continued weakness in the crosses - as it had perhaps become an alternative flavor of the carry trade, considering its low yield and association with the US economy and rate path. There was no readily apparently news catalyst for the move overnight, in any case. Movements in rate spreads during the course of the USD rally (especially vs. EUR and AUD among the G-10) have favored the loonie even more. The disappointment over the 1.0700 area not holding in USDCAD may also be a contributing factor, as well as the 3-4 dollar/barrel rally in crude over the last week.

Data this week The calendar this week is reasonably busy despite the major Christmas holiday nearly upon us. Here are the most interesting highlights

Tuesday

  • Sweden Dec. Confidence - has rebounded far more sharply back than for example in the US, back to the higher end of the historic range. 

  • Sweden Nov. PPI - expected to turn marginally positive on year-on-year comparisons after a couple of negative months. 

  • US Nov. Existing Home Sales - have rebound strongly to the highest level since early 2007. one wonders if the numbers here on out will begin to dip somewhat as the tax incentive effect slows. Some of the activity in Existing Home Sales has been due to foreclosures and related short/auction sales.

Wednesday

  • New Zealand Q3 GDP - expected to show an improvement over Q2's +0.1% QoQ level, but still negative on YoY comparisons. 

  • UK Bank of England Minutes - the world curious to see how the MPC voted after the curious three way split of the previous meeting. 

  • Canada Oct. GDP - market expecting a fairly strong number around 0.3% MoM, showing continued improvement after dipping as low as -0.9% MoM in Dec. of last year. 

  • US Nov. PCE Core - recent data may be a trough for a while due to year-on-year comparisons (oil collapse last winter and its effect on inflation across the board) 

  • US Nov. New Home Sales - have barely rebounded from the lows and far less than the Existing Home Sales numbers, perhaps a better leading indicator of the real aggregate demand in housing

Thursday

  • Bank of Japan Meeting Minutes - a bit more interesting than usual if we see any revelations about the bank's thinking and how it may want to tackle the deflation devil.

  • US Nov. Durable Goods Orders - volatile on a month-to-month basis, but always interesting to look at the year on year comparisons for key categories - like New Orders, which were still -11.0% YoY in the October report. 

  • US Weekly Initial Jobless Claims - has disappointingly ticked higher over the last two weeks, though the trend is still improving.

Friday

  • Japan Nov. Jobless Rate, CPI, Corporate Service Prices, Housing Starts. The CPI data is especially interesting for feeding potential Bank of Japan response.

A note on the seasonals... The last few years shows us that this week tends to be rather low on volatility, but that plenty can (and often does) happen in the final week of the year. And then the first week of the year often exhibits tremendous volatility and directional moves. So traders need to stay on their toes.