The US dollar remains at a critical juncture as Fed policy will be on hold for the foreseeable future and as we start to see an economic rebound come out of Europe. The world’s largest and strongest economy is likely to start to see economic growth slow in the fourth quarter, further cementing the belief that the Fed will have no changes in policy for the foreseeable future. With Europe starting to have some major macro events fall into place for them, we could see the dollar react more to rebounding European data than to sluggish numbers from the US.
The overall tone with risk appetite will focus on both the aftermaths of the UK General election and the details with the phase-one deal agreement between the US and China. The focus will also fall onto the whether we see an improvement in China’s November activity data and a plethora of rate decisions. The BOJ and BOE are widely to keep policy unchanged, but we could see Sweden’s Riksbank tighten policy while Mexico’s Banxico cuts rates.
Whatever you think of the UK election result, it’s clear that this result partially lifts the cloud of uncertainty that’s held back the currency and the economy for so long. As the old adage goes, the markets hate uncertainty. As we know, they’re not too fond of Brexit either, but that’s a discussion for another day. For now, no-deal Brexits have vanquished.
The upcoming BOE meeting will be Governor Carney’s last meeting and to be honest more attention will probably be paid on who Boris Johnson picks to be the next governor. It will be interesting to see how much reference the policy statement provides regarding the election outcome.
The December flash PMI surveys and German IFO business confidence report could have serious impact on whether we see EUR/USD breakout higher. If the bottom is in place for economic growth in the region, we should see continue to see services remain resilient and upticks with the manufacturing readings.
From a macro-economic perspective oil prices could rip higher after both trade and Brexit uncertainty have been alleviated in the short-term. Oil could still rally another 5% here, despite oversupply concerns for the first half of 2020, because investors have been overly negative with their demand side forecasts.
Gold has remained resilient throughout the 24-hour wave of global risk appetite because the dollar is finally breaking. It seems remarkable that gold is higher after a phase-one trade deal seems imminent, Brexit no-deal risks have been wiped out, and we are in the midst of a massive global stock market rally. Gold could see further momentum after the euphoria of this risk-on move is faded. Investors will still have appetite for safe-havens as we enter a very lengthy Brexit transition phase and are not anywhere close to seeing a broader US-China trade deal.
Bitcoin remains in consolidation mode again between $7,000 and $8,000. Regulatory hurdles remain and fresh cryptocurrency frauds have kept Bitcoin closer to the lower boundaries of its recent trading range. Volatility has somehow managed to avoid Bitcoin over the past week, but that should not last as we near the May halving event and as we continue to see strides made with mainstream acceptance.
Positive trade news boosted the Mexican peso against the dollar this week. The peso appreciated from weekly lows of 19.29 down to briefly breaking below 19 after a US-China limited trade deal could be announced soon. The USMCA also got the necessary tweaks to get the rubber stamp from the Democrats as the US, Mexico and Canada representatives hammered out the revisions.
Emerging markets in general are trading higher as risk appetite is on the rise after a potential truce is now close to a reality. Anonymous sources claim the deal could already be signed, just waiting for an announcement before the December 15 tariffs kick in.
Some of the positive momentum will be less next week as the Mexican central bank is expected to cut its benchmark rate by 25 basis points. The rate cut is already priced in, but in the last meeting two out of the five members voted for a 50 basis points cut. Economic data has been disappointing and although under less pressure if trade news is to be believed, the Mexican economy is struggling to get out of the technical recession it fell into earlier this year.
Protests have kicked off again with record numbers turning out last weekend. They were reportedly peaceful and this was the first demonstration that had been officially sanctioned. Warnings about a self-imploding economy seem to be falling on deaf ears and Tuesday’s unemployment rate could turn nasty.
As always, there is the risk that protests turn violent again, which would be negative for the HK33 index. USD/HKD is still in the upper half of the trading band.
We’re still waiting for an announcement regarding the Phase 1 trade deal between the US and China. Both sides remain in constant daily contact, reportedly, and are always “close” to a deal. China’s export numbers released last weekend were dismal and may jolt China toward a faster deal. Recent talk is that the December 15 imposition of more tariffs by the US will be either postponed or suspended. On Monday we see China’s industrial production and retail sales data. IP has been surprisingly robust, but the weak exports data might suggest the downside is vulnerable.
Indian equities have been sliding since the RBI failed to cut its benchmark rate last week. There are no major data points to impact markets next week.
The next major focus for Australia will be Thursday’s release of the November jobs report. Given that the RBA has said it will be a major data point to influence monetary policy, a weak number will push the RBA toward a more dovish stance.
The NZ economy appears to be steadily plodding along. Q3 growth data are due on Thursday and expectations are for +2.0% y/y after +2.1% in Q2. A rebound in dairy prices has helped the kiwi, but a weaker GDP print will be bearish for the local dollar.
Latin American leaders might be breathing a sigh of relief at a US-China tariff truce as the prolonged trade war took its toll in emerging markets, which in turn heightened wealth inequality making social protests a common occurrence in the region. The protests in Santiago are ongoing and have taken the peso to record lows. Central bank and government intervention reduced the fall of the currency, but it is only now with trade optimism that a recovery can begin.
The biggest risk is another disappointment when the two sides appear close to a deal, this would not be the first time this has happened. The urgency of the situation, and the high political states for Donald Trump ahead of an election year could pave the way for a deal that if struck would boost risk appetite.
Now that Boris Johnson has massive majority, markets will look to see how hard of a Brexit will he pursue. Brexit risks remain as we still could see EU trade talks completely fall apart. A tremendous amount of nationalization risk has been lifted, but now the clock begins for Johnson to get all of their trading relationship agreements done next year. Business want certainty over the transition period and until we get that, we could see limited rallies in sentiment and investment.
Now that the House Judiciary Committee is moving forward with two articles of impeachment against President Trump, we will see this get voted through in the House, but ultimately this will not get voted through the Republican held Senate. Impeachment risks are still minimal for the President and his odds for re-election are higher than ever.
Key Economic Releases and Events:
Sunday, December 15th
- 5:00 pm AUD Dec Flash Manufacturing PMI: No est v 49.9 prior
- 7:30 pm JPY Dec Manufacturing PMI: No est v 48.9 prior
- 9:00 pm CNY Nov Industrial Production Y/Y: 5.0%e v 4.7% prior
Monday, December 16th
- 1:30 am INR Nov Wholesale Prices Y/Y: 0.82%e v 0.16% prior
- 2:00 am TRY Sept Unemployment Rate: No est v 14.0% prior
- 3:15 am EUR France Dec Manufacturing PMI: 51.5e v 51.7 prior
- 3:30 am EUR Germany Dec Manufacturing PMI: 44.6e v 44.1 prior
- 4:00 am EUR Eurozone Dec Manufacturing PMI: 47.3e v 46.9 prior
- 4:30 am GBP UK Dec Manufacturing PMI: No est v 48.9 prior
- 8:00 am PLN Poland Oct Trade Balance: No est v 171m prior
- 8:00 am RUB Russia Nov Industrial Production: 2.6%e v 2.6% prior
- 8:30 am USD Dec Empire Manufacturing: 4.5e v 2.9 prior
- 9:45 am USD Dec Markit Manufacturing PMI: 52.8e v 52.6 prior
- 9:45 am USD Dec Markit Services PMI: 52.0e v 51.6 prior
- 10:00 am USD Dec NAHB Housing Market Index: 71e v 70 prior
- 11:00 am GBP BOE publishes Financial Stability Report, Stress Tests
- 4:00 pm USD Oct TIC Long-Term Purchases: No est v $49.5b prior
- 7:00 pm NZD Dec ANZ Business Confidence: No est v -26.4 prior
- 7:30 pm AUD Monetary Policy Meeting Minutes
- 7:30 pm SGD Nov Non-oil Domestic Exports: 5.9%e v -2.9% prior
Tuesday, December 17th
- 3:00 am EUR Spain Q3 Labor Costs Y/Y: No est v 2.4% prior
- 4:30 am GBP Oct Average Weekly Earnings 3M/YoY: No est v 3.6% prior
- 4:30 am GBP Nov Jobless Claims Change: No est v 33.0k prior
- 8:00 am HUF Hungary Central Bank (MNB) Interest Rate Decision: Expected to keep rates unchanged
- 8:00 am USD Fed’s Kaplan speaks in NY
- 8:30 am USD Nov Housing Starts: 1340ke v 1314k prior
- 8:30 am CAD Oct Manufacturing Sales M/M: No est v -0.2% prior
- 9:15 am USD Nov Industrial Production M/M: 0.9%e v -0.8% prior
- 12:30 pm USD Fed’s Rosengren to speak to Forecasters Club of NY
- 12:30 pm USD Fed’s Williams holds press briefing on economic conditions
- 6:30 pm AUD Nov Westpac Leading Index: No est v -0.07% prior
- 6:50 pm JPY Nov Trade Balance: No est v ¥17.3B prior
Wednesday, December 18th
- 2:05 am THB Thailand Central Bank (BOT) Interest Rate Decision: Expected to keep rates unchanged
- 3:00 am SEK Sweden Dec Economic Tendency Survey: No est v 94.7 prior
- 4:00 am EUR Germany Dec IFO Business Climate: 95.5e v 95.0 prior
- 4:30 am GBP UK Nov CPI Y/Y: No est v 1.5% prior
- 5:00 am EUR Eurozone Final Nov CPI Y/Y: 1.0%e v 1.0% prelim
- 7:00 am CZK Czech National Bank (CNB) Interest Rate Decision: Expected to keep rates unchanged
- 8:00 am RUB Russia Nov Unemployment Rate: 4.7%e v 4.6% prior
- 8:30 am CAD Nov CPI M/M: No est v 0.3% prior
- 12:40 pm USD Fed’s Evans speaks in Indianapolis
- 4:45 pm NZD New Zealand Q3 GDP Q/Q: No est v 0.5% prior
- 7:30 pm AUD Australia Nov Employment Change: No est v -19.0K prior
- JPY Bank of Japan (BOJ) Interest Rate Decision: No change in policy expected
Thursday, December 19th
- 2:45 am EUR France Manufacturing Confidence: No est v 100 prior
- 3:30 am SEK Sweden Central Bank (Riksbank) Interest Rate Decsion: Live Meeting- expected to hike rates but we should not be surprised if they kept rates on hold.
- 4:00 am NOK Norway Central Bank (Norges) Interest Rate Decision: Expected to keep rates unchanged
- 4:00 am PLN Poland Nov Sold Industrial Output M/M: No est v 7.8% prior
- 4:30 am GBP Nov Retail Sales (ex-auto) M/M: No est v -0.3% prior
- 5:00 am SEK RIksbank Press Conference
- 7:00 am GBP Bank of England (BOE) Interest Rate Decsion: Expected to keep rates unchanged
- 8:00 am PLN National Bank of Poland Publishes Minutes of Rate Meeting
- 8:30 am USD Dec Philly Fed Business Outlook: 8.0e v 10.4 prior
- 8:30 am USD Q3 Current Account Balance: -$121.0Be v -$128.2B prior
- 8:30 am USD Weekly Initial Jobless Claims
- 8:30 am CAD Oct Wholesale Trade Sales M/M: No est v 1.0% prior
- 10:00 am USD Nov Leading Index: 0.1%e v -0.1% prior
- 10:00 am USD Nov Existing Home Sales: 5.43Me v 5.46M prior
- 2:00 pm MXN Mexico Central Bank (Banxico) Interest Rate Decision: Expected to cut rates by 25 bps to 7.25%
- 6:30 pm JPY Japan National CPI Y/Y: No est v 0.2% prior
- 6:50 pm JPY BOJ releases Q3 Money Flow
- 9:00 pm NZD New Zealand Nov Credit Card Spending Y/Y: No est v 2.5% prior
Friday, December 20th
- 2:00 am EUR Germany January GFK Consumer Confidence: No est v 9.7 prior
- 3:30 am SEK Sweden Nov Retail Sales M/M: No est v 0.2% prior
- 4:00 am PLN Poland Nov Retail Sales M/M: No est v 7.4% prior
- 4:00 am EUR Italy Dec Consumer Confidence: No est v 108.5 prior
- 4:30 am GBP Q3 Current Account Balance: No est v -£25.2b prior
- 4:30 am GBP UK Q3 Final GDP Y/Y: 2.1%e v 2.1% prelim
- 6:00 am GBP BOE’s Haskins speaks in London
- 7:00 am ZAR South Africa Nov Budget: No est v -42.3b prior
- 7:00 am MXN Mexico Oct Retail Sales Y/Y: No est v 2.4% prior
- 8:30 am USD US Q3 Final GDP Q/Q: 2.1%e v 2.1% prior
- 8:30 am CAD Canada Oct Retail Sales M/M: No est v -0.1% prior
- 10:00 am EUR Eurozone Dec Advance Consumer Confidence: No est v -7.2 prior
- 10:00 am USD Nov Personal Income 0.3%e v 0.0% prior
- 10:00 am USD Nov Personal Spending 0.5%e v 0.3% prior
- 10:00 am USD Nov CPE Core Deflator M/M: 0.1%e v 0.1% prior