Dollar Firms Ahead of US Data

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  • French Q3 GDP growth was revised to 1.1% y/y vs. the expected 1.2%.
  • UK Q3 GDP growth was revised down to 2.1% y/y from the expected reading of 2.3%.
  • The US reports personal income and core PCE for November.
  • Elsewhere, Canada reports October retail sales, which are expected to rise 0.4% m/m vs. -0.5% in September.
  • Brazil’s central bank released its quarterly inflation report.
  • Mexico reports mid-December CPI, and is expected to rise 2.07% y/y vs. 2.26% in mid-November.
  • The Vietnamese dong fell to the weak end of its trading band.

Price action: The dollar is mostly firmer against the majors, but trading in very narrow ranges. Sterling and the yen are outperforming, while the Swedish krona and the euro are underperforming. The euro is trading near $1.0930, while sterling shrugged off a weak Q3 GDP revision and is trading higher near $1.4885. Dollar/yen is trading just below 121. EM currencies are mostly weaker. RUB, BRL, and PHP are outperforming while ZAR, HUF, and SGD are underperforming. MSCI Asia Pacific ex-Japan was up 0.6% on the day, with Japan markets on holiday. MSCI EM is up 0.7%, rising for the third straight day and for 6 of the past 7 days. The Shanghai Composite was down 0.4% while the Shenzen Composite was down 1.2%. Euro Stoxx 600 is up 1.8% near midday, while US futures are pointing to a higher open. The 10-year UST yield is up 1 bp at 2.25%, while European bond markets are mostly softer. Commodity prices are mostly higher, with oil up over 1% and copper up slightly.

  • French Q3 GDP growth was revised to 1.1% y/y vs. the expected 1.2%. French consumer spending was also weaker than expected in November, falling -1.1% m/m vs. the consensus 0.1% gain. Elsewhere in Europe, Italian industrial orders came in at 4.6% m/m for October. Italy also reported October retail sales, falling -0.3% m/m vs. the 0.3% consensus gain.
  • UK Q3 GDP growth was revised down to 2.1% y/y from the expected reading of 2.3%. The UK also reported Q3 current account at -GBP17.5 bln vs. -GBP21.5 bln consensus. It also reported Q3 unit labor costs, which rose 2.0% y/y vs. 2.2% expected. Overall, the data don’t really support the notion of BOE lift-off, which is currently expected near mid-2016. Still, sterling has proven resilient today, up slightly after being unable to break below the cycle low near $1.48 from yesterday.
  • The US reports November personal income and core PCE for November. Personal spending was inadvertently released early last night, and came in at the expected 0.3% m/m. The US also reports November durable goods orders, which are expected at -0.6% m/m vs. a 2.9% gain in October, as well as November new home sales (2.0% m/m expected) and final December Michigan consumer sentiment (92.0 expected).
  • Elsewhere, Canada reports October retail sales, which are expected to rise 0.4% m/m vs. -0.5% in September. Canada also reports October GDP, which is expected at -0.1% y/y vs. a flat reading in September. Recent data from Canada have been disappointing, and keeps alive the notion that the BOC’s easing cycle has not yet ended. USD/CAD continues to flirt with the 1.40 area but has yet to make a clean break. To us, it’s just a matter of time.
  • Brazil’s central bank released its quarterly inflation report. Using its so-called reference scenario of steady interest rates and exchange rates, the bank forecasts for inflation in 2015 and 2016 were increased to 10.8% and 6.2%, respectively. The 2017 forecast was introduced at 4.8%. The bank added that recent BRL weakness and inflation inertia pose risks ahead. We believe the tightening cycle will be restarted in Q1, but even that will not be enough to halt BRL underperformance next year. For now, new Finance Minister Barbosa is saying the right things, emphasizing that the government will do what is needed to meet the 0.5% of GDP primary surplus target for 2016.
  • Mexico reports mid-December CPI, and is expected to rise 2.07% y/y vs. 2.26% in mid-November. It also reports the monthly GDP proxy for October that day, and is expected to rise 2.0% y/y vs. 3.1% in September. The ongoing combination of sluggish growth and low inflation should keep the tightening cycle very modest.
  • The Vietnamese dong fell to the weak end of its trading band. It is allowed to trade +/- 3% on either side of the central bank’s reference rate. That rate of 21,890 has held since the last devaluation on August 19, which was the third of the year. With pressures building, another devaluation is likely in early 2016.