The continuing seasonal trend, vaccine hopes, a glimmer of hope on Brexit, and most importantly, the Fed’s indication that they will continue their monetary loosening as long as the economy is suffering pushed all four US indices (DJI, SPX, NDX and RUT) to new all-time highs. International indices also soared, except for FTSE, depressed by a 2.24% recovery in GBP. The dovish Fed also sent the dollar to new 32-month low, slipping below the psychological 90.00 handle. Equity sentiment and the dollar move pushed Oil up to within a whisker of $50, a 10-month high.
Next week is Christmas week, and hopes will still be for a stimulus package before Congress dissolves for the year. The big risk to the downside is the failure of the Brexit deal, which is still touch and go.
Weekend passed without progress on the stimulus package and SPX fell, although there was noticeable rotation into tech (SPX -0.44%, NDX +0.70%), showing that COVID was the sentiment issue of the day, rather than full risk-on, as also shown by the the fact that Oil rose, and haven assets JPY, Gold and bonds were all down. This was despite a general fall in USD, driven by a rise in EUR and GBP, on hopes of a Brexit deal. A good example of sentiment on different issues shown up in different asset classes.
Tuesday December 15
An announcement that congressional leaders talks were continuing resulted in a strong Turnaround Tuesday rally today, with SPX/DJI slightly outperforming NDX, Oil rising, and JPY and bonds fading. The safe haven dollar continued to fall, hence why Gold was up on the day. Cable was particularly strong, on Brexit talks hopes.
Wednesday December 16
Today Fed Chair Jay Powell bolstered the Fed’s central message that it will not curtail its bond-buying programme until “substantial further progress” is made towards full employment and higher inflation (the dual mandate). Stocks rose again, with NDX outperforming and after a brief spike up, (as traders digested the Fed report) the dollar fell further boosting gold. Oil was up and bonds, yen, and the safe haven dollar were down again, DXY making another 24-month low.
Thursday December 17
Further progress on the stimulus meant yet another day in the same vein, with all indices and Oil up except FTSE which reacted to three days of strong sterling recovery. Just like yesterday, the same factors were in play, with USD making a new low, but JPY even further down, and bonds down. However, Gold was up with the weaker dollar on what was otherwise a risk-on day.
Friday December 18
Quadruple witching today, where option and futures contracts expire, which inevitably caused volatility, especially with futures which cannot simply be exercised. After rising in Europe, US markets fell from the opening bell, only to rise sharply again into the close. Markets ended slightly down. Having slipped below the psychological 90c on Thursday, DXY reversed back up slightly. The underlying sentiment was still positive as reflected by a sharp move up in yields and Oil, and a pullback in Gold. GBP was particularly strong on Brexit hopes, briefly hitting 1.36, its highest level since April 2018.
WEEKLY PRICE MOVEMENT
Indices were up this week, with last week’s worst performer DAX, being the best this week. The strongest forex move was GBPCAD up 2.33%. A huge move in crypto took BTCUSD to new all time highs, and FANGs were very strong, outperforming NDX considerably.
Selling AUDJPY last week was a bad idea, the Aussie continued to surge, and I lost 0.46%, taking my running total to 8.03% and 23/41 wins. This week I will bet that USD will continue back up, and that Oil is a little overextended. I will therefore buy USDCAD.
Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day.
NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
- Short Christmas week
- Thin on data as expected
- Brexit talks continue
- US and UK GDP
Monday December 21
The foreshortened Christmas week opens with little scheduled news. The main driver will probably be the ongoing Brexit deal talks.
01:30 PBoC Rate Decision/Statement (e3.85% hold)
13:30 Chicago Fed National Activity Index
15:00 US Consumer Confidence
Tuesday December 22
Final GDP readings today from the UK and US make this the busiest scheduled news day of the week.
00:30 Aus Retail Sales (SA MOM e-0.6% p1.4%)
07:00 UK Q3 GDP (QoQ e15.5% unch)
07:00 Germany Gfk Consumer Confidence
13:30 US PCE QoQ
13:30 US GDP Annualised (e33.1% unch)
23:50 BoJ MPC Minutes
Wednesday December 23
The last full day before the three day closedown.
00:30 Aus Imports/Exports/TB (TB p7.45B)
13:30 US PCE MoM and YoY
13:30 US Jobless Claims
13:30 Canada GDP
15:00 Michigan CSI
15:00 US New Home Sales
Thursday December 24
Markets close at lunchtime today and re-open on Monday (US) and Tuesday (Europe). There is a rate decision in Turkey.
13:30 US Durable/ND Capital Goods (Durables e0.6% p1.3%)
23:30 Tokyo CPI ex Fresh Food (YoY)(Dec)
23:30 Japan Jobs/Unemployment
23:30 Japan Retail Sales
Friday December 25
Today is Christmas Day and markets everywhere except Japan and China are closed.
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