Markets Quiet Ahead of Holiday

new calendar

  • The US reports revised Q3 GDP, weekly jobless claims, and November leading index
  • Canada reports November CPI and October retail sales
  • The BOJ kept policy steady, as expected
  • Mexico mid-December CPI is expected to rise 6.66% y/y

The dollar is broadly firmer against the majors.  The Loonie and euro are outperforming, while Swissie and Kiwi are underperforming.  EM currencies are mixed.  RUB and ZAR are outperforming, while KRW and RON are underperforming.  MSCI Asia Pacific was down 0.2%, with the Nikkei falling 0.1%.  MSCI EM is flat on the day, with the Shanghai Composite rising 0.4%.  Euro Stoxx 600 is up 0.1% near midday, while S&P futures are pointing to a higher open.  The 10-year US yield is down 1 bp at 2.49%.  Commodity prices are mostly lower, with oil down 0.2%, copper down 0.1%, and gold flat.

The dollar is broadly firmer but remains in very narrow ranges as markets await fresh drivers.  US rates are stable, with the 10-year yield still unable to pierce the 2.50% area, at least for now.  Upcoming holiday is also muting activity across most markets.

During the North American session, the US reports revised Q3 GDP, weekly jobless claims, and November leading index.  Growth is expected to remain steady at 3.3% SAAR.  The claims data are for the week that the NFP survey is taken, and may garner some interest.

Canada reports November CPI and October retail sales.  The former is expected to rise 2.0% y/y vs. 1.4% in October, while the latter is expected to rise 0.3% m/m vs. 0.1% in September.  Rising price pressures have the markets looking for a 25 bp hike to 1.25% at the next BOC policy meeting January 17.  A small handful of analysts look for steady rates then.

The BOJ kept policy steady, as expected. Only Kataoka voted dissented.  He said it was appropriate for BOJ to purchase JGBs so that yields on maturities of 10 years and longer would be even lower.  Governor Kuroda said inflation pressures have improved in 2017 and inflation is expected to keep rising in 2018.  Decision supports our view that BOJ is in no hurry to tighten and will be the last to exit QE.

Encouraged by higher US yields, the dollar is firm against the yen.  It is testing a trend line drawn off the November high (~JPY114.75) and the high from earlier this month (~JPY113.75), which comes in near JPY113.50 today.   A clean break would set up a test of that November high near JPY114.75.

New Zealand reported Q3 GDP overnight.  The economy grew 2.7% y/y vs. 2.4% expected.  Furthermore, Q2 growth was revised to 2.8% from 2.5% previously.  The RBNZ doesn’t meet again until February.  A lot can still happen between now and then, and so we downplay the policy implications of the GDP data.  Indeed, after a brief bounce, Kiwi is trading back below .70.

Korea reported firm trade data for the first 20 days of December.  Exports rose 16.4% y/y while imports rose 19.5% y/y.  Taiwan just reported stronger than expected export orders for November, which points to strong exports in H1 2018.  Indeed, regional trade data have been robust so far in Q4, and markets will be looking for a continuation of this going into 2018.

Taiwan central bank kept rates steady at 1.375%, as expected.  CPI rose 0.4% y/y in November.  The central bank does not have an explicit inflation target, but low price pressures should allow it to remain on hold well into 2018.

Mexico mid-December CPI is expected to rise 6.66% y/y vs. 6.59% in mid-November.  If so, it would be well above the 3% target as well as the 2-4% target range.  Banco de Mexico just hiked 25 bp to 7.25% last week.  If price pressures top out, it may be able to stand pat in early 2018.