Politics and Powell

We were once again reminded that this is the era of political-driven trading after a surprise coalition formed in New Zealand. The euro and Swiss franc led the way while the kiwi lagged badly. On the Fed, the latest report is that Trump is leaning towards Powell. The long EURUSD Premium trade was closed for 110 pips, while the other EUR trade remains in progress, currently 110 pips in the green.

The anniversary of Black Monday had a fitting end for 2017 with the S&P 500 finishing higher after earlier worries were wiped away. The early tone was risk aversion on China concerns and a 2% fall in Hong Kong stocks.

NZDUSD had its bigggest 1-day drop in over 2 years after the Labour Party was able to throw together a coalition with the help of the Greens and First Party. That means Bill English will and his National Party – which got 44.4% of the vote – will be in opposition. The kiwi fell more than 150 pips on the surprise turn. More broadly, it's a reminder of the discontent in the air and the sudden willingness almost everywhere to try new things.

We contrast that with China where Communist Party leadership and Xi in particular are strengthening their leadership. In the long-term, it's a signal about the rise of China and emerging markets and the frustration in the developed world.

Meanwhile in the US, hopes for many voters for a radical change in monetary policy may be dashed. A Politico report said Fed Governor Jerome Powell is the favourite to replace Yellen. He's done little to publicly separate himself in more than 5 years at the Fed with most of his focus on regulation. The thinking is that he will be a continuation of the Bernanke-Yellen era, sticking with the same policies and prescriptions. The stock market responded with a small flurry at the end of the day and the US dollar dipped.

Looking ahead, news from the Party Congress is likely to be the main driver but Kuroda also speaks at 0635 GMT and later in North American trade, Canadian retail sales and CPI numbers are due.