What's been happening over the holiday period and what can we expect for the first week of the New Year?
|- Depending on where you are in the world, we are either 24hr or 48hrs away from the start of the New Year.
- While the majority of the major financial centres have been out on national holidays, we have still seen some action in the financial and commodities markets and subsequent flows in the FX space.
One of the standouts during the holiday period has been the crazed price action in global equities. For the individual benchmarks, the Dow's best daily performance came on 26th which was Boxing Day in the UK and Australia, although the US markets were open. Traders pounced on beaten-down stock prices that came from a brutal sell-off on a shortened Christmas Eve. Both the Dow and S&P added 5% on the 26th and the NASDAQ 5.6% - Those were the best gains since 2009, just after suffering the worst decline in history in the trading session before Christmas.
USD/JPY better offered in risk-off environment
However, given the thin liquidity, it did not take much to move the market, relatively speaking and bulls should take note of the subsequent flows into the Yen that has sustained an overall bid, despite the positive snap back in the indices. USD/JPY has fallen from space above 113.50 to a low of 110.14 since the middle of the month. Yes, the dollar did gain a yen as the benchmarks soared 5-5.6%, but the move was faded right back to where it came from again. Moreover, if we look to the Aussie and Swiss Frank, the FX space is revealing the actual mood of the financial and commodity markets space - and that is 'risk-off'.
2019 here we come . . .
The start to the New Year is going to be where we left off. Its groundhog day comes early for America and Candian friends while in Asia, well, it is just as well that China will not celebrate the New Year celebrations until February's Spring Festival. So, there is still time to see some positive progress in the Sino/US trade spat as a mid-level US delegation is reportedly going to be heading to China in the week of January 7th to initiate the next round of trade talks.
Meanwhile, the partial U.S. government shutdown continues to concern investors, supporting a risk-off play in the FX space. President Donald Trump tweeted before the weekend and threatened to “close the Southern border entirely,” if congressional Democrats don’t approve funding for a border wall, complaining that the U.S. was losing money to Mexico through the North American Free Trade Agreement, signed in late November after 15 of negotiations.
Brexit risk is back in vogue
Elsewhere, we have Brexit risk to trade also. The UK is due to leave the EU on 29 March, following the result of the 2016 referendum. Uk Parliament is due to return from the holidays, and there will be a vote in the Commons on PM May's and the EU's agreed withdrawal agreement and the political declaration outlining ambition for future talks. The vote by the MPs on the deal had been scheduled for 11 December, but May postponed it until January when it became clear her deal would be rejected, leading to widespread anger in the Commons...and the saga continues. However, the latest on that was with the Foreign Minister Hunt saying the government can get May's Brexit deal through parliament which helped cable lift to the 1.27 handle.
However, the weekend's press has reported that the UK's international trade secretary Liam Fox speaking with the Sunday Times over the weekend says if parliament rejects Theresa May's Brexit deal then Brexit is only around 50-50:
"What you can be sure of is that if we vote for the prime minister's deal then it's 100% certain that we will leave on 29 March. If we do not vote for that, I'm not sure I would give it much more than 50-50. And, for me, that would induce a sense that we had betrayed the people that had voted in the referendum."
All eyes on nonfarm payrolls
While Brexit and trade talks are likely to be the key focus for the first quarter and make for the most volatility, in the immediate future, markets will certainly not discount the US jobs report for the first week of the New Year, as well as Fed noise. We also have Chair Powell that will participate on the same day as nonfarm payrolls in a joint interview with Yellen and Bernanke at an academic conference - However, that is unlikely to offer a concrete discussion of current conditions or future monetary policy.
"In the context of pessimistic market sentiment, we expect payrolls rebound to 190k for December to be interpreted as slightly hawkish. Surveys published so far suggest payrolls likely remained firm, which should keep the unemployment rate unchanged at 3.7%. We also anticipate wages to rise 0.3% m/m, bringing the annual print slightly down to 3.0%,"
analysts at TD Securities wrote.
For today, we have the Chinese PMIs that could have an impact considering the angst over a slowdown in China and the global economy as a whole.
Good luck for the New Year ahead!
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