The USD is following up on its reversal yesterday with additional strength in today’s session – particularly against a struggling British pound. Also, liquidity conditions in these final trading days of the trading year are looking treacherous.
Pound gets pounded
The pound is down as the October unemployment level came in higher than expected and jobless claims fell less than hoped for. The Dec. CBI survey of retailers looked very strong for this Christmas season, but the expectations component dropped to a new five-month low. An increase in the VAT will kick in come January, so let’s see how strong the environment is this time next month. Also possibly to blame for the GBP sell-off are rather thin markets combined with a squeeze on stale EURGBP shorts as that pair squirts back above the 200-day moving average today. The next couple of days tell us whether this is simply a squeeze on weak positioning ahead of the key Euro-related event risks to close this week or if something else is afoot. Note that GBPCHF just broke below 1.50 for the first time ever.
The pound is down as the October unemployment level came in higher than expected and jobless claims fell less than hoped for. The Dec. CBI survey of retailers looked very strong for this Christmas season, but the expectations component dropped to a new five-month low. An increase in the VAT will kick in come January, so let’s see how strong the environment is this time next month. Also possibly to blame for the GBP sell-off are rather thin markets combined with a squeeze on stale EURGBP shorts as that pair squirts back above the 200-day moving average today. The next couple of days tell us whether this is simply a squeeze on weak positioning ahead of the key Euro-related event risks to close this week or if something else is afoot. Note that GBPCHF just broke below 1.50 for the first time ever.
Scandie Central Bank Two-fer
The Riksbank and Norges Bank were both out with interest rate decisions. The Riksbank’s move was widely expected, though the currency managed to notch further gains as Ingves was out with relatively hawkish guidance – expecting further hikes due to a very strong economy, though tempered with caution due to the situation in Europe. The official outlook for the repo rate was relatively unchanged since the October meeting and there were two governors who dissented from the decision who hoped to keep rates at 1.00%. SEK has a history as a pro-cyclical currency, so it would be interesting to see how it performs if we get a correction in risk appetite as EURSEK nears the 9.0 level.
The Riksbank and Norges Bank were both out with interest rate decisions. The Riksbank’s move was widely expected, though the currency managed to notch further gains as Ingves was out with relatively hawkish guidance – expecting further hikes due to a very strong economy, though tempered with caution due to the situation in Europe. The official outlook for the repo rate was relatively unchanged since the October meeting and there were two governors who dissented from the decision who hoped to keep rates at 1.00%. SEK has a history as a pro-cyclical currency, so it would be interesting to see how it performs if we get a correction in risk appetite as EURSEK nears the 9.0 level.
Norges Bank left its deposit rate unchanged as expected, but the outlook was perhaps more hawkish than expected, as the outgoing Gjedrem warned against keeping the rate too low for long due to risks of household debt growth. This probably should be seen as a parting statement by Gjedrem on the long run risks of a low rate rather than any indication of imminent rate hikes. His replacement, Oystein Olsen, has suggested that NOK’s relative strength will be a key in determining monetary policy. On that account, against the Euro, the NOK looks relatively firm so no imminent threat of a rate hike as long as Europe is struggling with its sovereign debt demons. Longer term, NOK looks woefully undervalued in places (like versus AUD and NZD in particular)
US Data
The Empire Manufacturing Survey mean reverted and then some as the last two months of wild swings makes it tough for anyone to draw any conclusions from the survey. The survey wasn’t as strong as it looks on the surface if we have a look at the internals, as New Orders only rose to 2.6 from -24.4 in Nov. and +12.9 in Oct. The worst indicator was in the employment-related sub-indices, as the Number of Employees index fell to -3.4 vs. 9.1 in Nov. and the Average Workweek drooped to -14.8 vs. -13 in Nov. On the margin side, we’ve still got a squeeze as Prices Paid registered a nasty 28.4 while Prices Received was out at 3.4.
The CPI was relatively in-line and not noteworthy, except as a reminder of the index’s worthlessness except in indicating that the Fed thinks real world inflation might be as opposed to what real world inflation actually is. And food and gas prices have risen dramatically in November. So it is clear that oil prices and food prices need to remain capped here very soon if we are to expect any continued risk of deflation in the US economy.
The Empire Manufacturing Survey mean reverted and then some as the last two months of wild swings makes it tough for anyone to draw any conclusions from the survey. The survey wasn’t as strong as it looks on the surface if we have a look at the internals, as New Orders only rose to 2.6 from -24.4 in Nov. and +12.9 in Oct. The worst indicator was in the employment-related sub-indices, as the Number of Employees index fell to -3.4 vs. 9.1 in Nov. and the Average Workweek drooped to -14.8 vs. -13 in Nov. On the margin side, we’ve still got a squeeze as Prices Paid registered a nasty 28.4 while Prices Received was out at 3.4.
The CPI was relatively in-line and not noteworthy, except as a reminder of the index’s worthlessness except in indicating that the Fed thinks real world inflation might be as opposed to what real world inflation actually is. And food and gas prices have risen dramatically in November. So it is clear that oil prices and food prices need to remain capped here very soon if we are to expect any continued risk of deflation in the US economy.
Looking ahead
Liquidity is already looking fairly treacherous judging from some of the action overnight and ahead of the US open today, so traders should position themselves accordingly.
Liquidity is already looking fairly treacherous judging from some of the action overnight and ahead of the US open today, so traders should position themselves accordingly.
Keep an eye on the news flow on the Ireland vote on the bailout deal and on the EU summit on Thu/Fri. EURGBP and EURCHF are telling two wildly divergent stories at the moment. Beware the SNB’s Libor Target setting meeting tomorrow.
Also keep an eye on bonds, which are not following up yet on the strange post-FOMC sell-off yesterday. Remember that there is a new FOMC in town come the first of January and ahead of the next FOMC decision on January 26.
Economic Data Highlights
- Australia Dec. Consumer Confidence rose to 111.0 vs. 110.7 in Nov.
- Japan Q4 Tankan Large Manufacturer’s Survey out at 5 vs. 3 expected and 8 in Q3
- Japan Q4 Tankan Non-manufacturing Survey out at 1 vs. 0 expected and 2 in Q3
- Japan Q4 Large Manufacturing/Non-manufacturing Surveys out at -2 and -1 vs. 0/-3 expected, respectively and vs. -1/-2 in Q3
- Australia Nov. New Motor Vehicle Sales out at +0.2% MoM and -0.9% YoY vs. +3.4% YoY in Oct.
- China Oct. Leading Index rose +0.9% MoM vs. +0.6% in Sep.
- Sweden Riksbank raised interest rates 25 bps to 1.25% as expected
- Norway Nov. Trade Balance out at +31.1B vs. +23.6B in Oct.
- UK Nov. Jobless Claims Change out at -1.2k vs. -3.0k expected and -5.2k in Oct.
- UK Oct. Average Weekly Earnings ex Bonus rose 2.3% 3M/YoY vs. 2.4% expected and 2.2% in Sep.
- Switzerland Dec. Credit Suisse ZEW Survey out at -12.5 vs. -30.9 in Nov.
- UK Dec. CBI Reported Sales rose to 56 vs. 38 expected and 43 in Nov.
- Norway Norges Bank left rate unchanged at 2.00% as expected
- Canada Oct. Manufacturing Sales rose +1.7% MoM vs. +1.0% expected
- US Nov. Consumer CPI out at +0.1% MoM and 1.1% YoY vs. +0.2%/+1.1% expected, respectively and vs. +1.2% YoY in Oct.
- US Nov. Consumer CPI ex Food and Energy out at +0.1% MoM and +0.8% YoY, vs. +0.1%/+0.6% expected, respectively and vs. +0.6% YoY in Oct.
- US Dec. Empire Manufacturing out at 10.57 vs. 5.0 expected and -11.1 in Nov.
- US Oct. Total Net TIC Flows out at +$7.5B in Oct. vs. +$51.0B expected and +$80.1B in Sep.
- US Oct. Net Long-term TIC Flows out at +$27.6B vs. +$77.2B in Sep.
- US Nov. Industrial Production out at +0.4% MoM vs. +0.3% expected
- US Nov. Capacity Utilization rose to 75.2% vs. 75.0% expected and 74.9% in Oct.
Upcoming Economic Calendar Highlights (all times GMT)
- US Dec. NAHB Housing Market Index (1500)
- US Weekly DOE Crude Oil and Product Inventories (1530)
- New Zealand Q4 Westpac NZ Consumer Confidence (2100)
- New Zealand Nov. Business PMI (2130)
- Australia Dec. RBA Q4 Bulletin (0030)
- New Zealand Dec. NBNZ Business Confidence (0200)
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