Markets this past week were dominated largely by key central bank speakers, a pivotal OPEC agreement, another missile launch by North Korea, and a scramble by the US Senate to vote on a critical US tax reform bill. On Friday morning, however, equity markets and the dollar were suddenly rocked by reports that former US national security adviser, Michael Flynn, will be testifying that President Trump directed him to make contact with the Russian government in the growing scandal that continues to threaten Trump and his administration. Stocks plunged at one point on Friday, as US dollar bulls also made for the exits.
Also, as of this writing, Senate lawmakers had been voting on a new US tax bill after Thursday's scheduled vote was delayed due to a technical setback that initially threatened to derail the plan. Despite this delay, Senate Republicans have increasingly thrown their support behind the bill. Intense anticipation that the tax bill will pass helped to boost US equities to progressively higher record highs on Thursday.
Reports on Thursday that OPEC had agreed to extend its oil supply cuts until the end of 2018 prompted a sharp rally for crude oil prices that expanded further on Friday morning. This potentially places crude oil in position to resume the bullish trend that has been in place for at least the past five months.
In other developments this past week, the most significant missile launch by North Korea to date was essentially shrugged off by markets shortly after volatility and safe-haven assets spiked briefly. Also this past week, the new Chair of the Federal Reserve, Jerome Powell, was confirmed by the US Senate to replace current Chair Janet Yellen when her term expires in February. Powell's monetary policy leanings are seen as very similar to Yellen's, but he has also been considered slightly more hawkish than Yellen. During his Senate confirmation hearing this week, Powell mostly echoed Yellen's monetary policy views and stated that the case was "coming together" for a Fed rate hike in December.
Throughout much of this past week, equity markets surged sharply, partly due to anticipation of the new US tax reform bill likely passing in the Senate. This rally was halted in its tracks on Friday when the reports on Michael Flynn emerged, heavily pressuring stocks. Meanwhile, the US dollar was also higher on the week until the Flynn report, but appeared to be marking time ahead of both the US tax reform outcome and the Fed's next pivotal meeting in mid-December. Gold prices were weighed down for much of this week as the dollar remained supported and rising equity markets pressured safe-haven demand. This changed on Friday as the Flynn report boosted market volatility and gold-buying.
Also on Friday, the Canadian dollar surged sharply after key Canadian economic data was released. Canada employment for November came out much better than expected at 79.5K versus 10.2K expected. The unemployment rate also beat forecasts at 5.9% vs 6.2% expected. Finally, Canada GDP for September was better than expected at 0.2% against a 0.1% consensus forecast. The rise in crude oil on Friday also helped boost the energy-linked Canadian dollar. In the upcoming week, the Bank of Canada will release its newest rate decision and statement, when it is expected that the central bank will keep rates on hold once again.
In the week ahead, the primary currency market-movers will revolve around events in Australia, Canada, and the US. Tuesday will feature Australian retail sales and trade balance data along with the Reserve Bank of Australia's interest rate decision and statement, where no change in the cash rate is expected. These will be followed by Australian quarterly GDP on Wednesday and Australian trade balance data on Thursday. Canada releases its own trade balance data on Tuesday, followed by the noted Bank of Canada decision on Wednesday, where no rate change is expected. Finally, the US will release its trade balance figures and ISM non-manufacturing (services) PMI on Tuesday, followed by ADP private payrolls data on Wednesday, and then November's official non-farm payrolls, unemployment rate, and wage growth data on Friday. Non-farm payrolls are expected to print around 200,000 jobs added in November. Of course, US markets will also be reacting further to ramifications of both the Flynn report and the US tax reform bill.
Here are some of the key events scheduled for the week ahead:
Monday, December 4:
- UK Construction PMI
Tuesday, December 5:
- Australia Current Account
- Australia Retail Sales
- Reserve Bank of Australia Cash Rate and Rate Statement
- UK Services PMI
- Canada Trade Balance
- US ISM Non-Manufacturing PMI
Wednesday, December 6:
- Australia GDP
- US ADP Non-Farm Employment Change
- Bank of Canada Overnight Rate and Rate Statement
Thursday, December 7:
- Australia Trade Balance
- US Weekly Unemployment Claims
Friday, December 8:
- UK Manufacturing Production
- US Non-Farm Employment Change, Unemployment Rate, and Average Hourly Earnings