Last Licks for the Dollar Bears
The dollar bears are getting their last licks in for 2017 perhaps foreshadowing of things to come in 2018. The bears took their cue from The Conference Board Consumer Confidence Index which fell to its lowest level since November 2016 indicating that consumer spending may have peaked after this years blowout holiday season for shoppers. And retail sales data could struggle in the face of even the most modest of US rate hikes in 2018
The US yields continued to spill lower overnight with US 10 year yields trading towards the 2.4 percent levels as demand for year-end yield curve flatteners saw the two vs ten years basis narrow to 51 points.
However, year-end flows can be deceptive especially with asset manager rebalancing both Bond and currency exposures. And what should be the most sensitive G-10 currency to falling yields, USDJPY, barely budged overnight but USD weakness did leak into other parts of G-10 and emerging market currencies?
The US Equities
The US equity markets scratched out slight gains as tech sector winners outweighed energy losers. But with only two trading days left on the 2017 calendar, expect volumes to remain light as the New Year Party season will likely start a bit early for equity traders and rightly so after a stellar year for US stocks.
Energy Prices
There has been a pause in WTI recent run higher. But given the much stronger price response to supply disruptions in the wake of OPEC supply cuts, the market is poised to make further gains, likely held back by holiday inspired profit taking. Indeed, the markets will continue to drift towards bullish headlines, and with geopolitical risk no less sure ahead of Libyan elections next year we should expect more regional chaos and disorder to underpin OIL prices.
The Australian Dollar
Higher commodity prices and lower US yields have the Australian dollar within grasp of reclaiming the .78 level.
The supply squeeze on copper and oil are lending support to the commodity block of currencies.
The Malaysian Ringgit
Holiday thinned trading conditions continue to weigh on sentiment, however, lower US yields and higher energy prices should play out well for the MYR in early 2018.
