European Outlook: US stocks had a quiet day with the Dow (USA30) closing short of 20,000 again at 19,945, Gold and Oil both traded higher (USD 1,144 – above its 10 DMA for the first time since November 10 and USD 53.84 – up some 1.6% on the day) respectively. The UK and Canada were closed yesterday for Boxing day. In Asia markets also saw low volumes. Japan Industrial production missed estimates rising 1.5% when expectations were for 1.7% during November. However, this was the best result for 5 months and there were also signs of life in the Retails Sales figures. Japan retail sales (November): -0.3% m/m (expected -0.5%, and for the y/y, up 1.7% expected +0.8% y/y, prior -0.2%. This is the first gain since February for retail sales.
FX Update: USD fell back again overnight. Canada, Australia, New Zealand and Hong Kong are all back from the extended Christmas holiday, but trading volumes are likely to remain thin for the rest of the week. AUD and NZD have been the main outperformers overnight. The EUR also continued to perk up against most currencies after Weidmann and Knot mulled tapering options yesterday, and EURUSD is currently at 1.0474, which but still has a way to go before revising last week’s peak at 1.0499. The Yen continues slide, after halting a four day advance yesterday, but USDJPY continued to ply a narrow range in the mid 117s, consolidating after logging a trend high at 118.66 last week. AUDUSD is above 0.72 now. Oil prices are higher and stock markets in Asia fluctuated in a very narrow range, with many centres closed.
Yesterday’s U.S. reports: Revealed another monthly consumer confidence surge that has taken the index back to levels last seen before the September 2001 terrorist attack when we saw a largely sustained downswing, alongside big December gains in the Richmond Fed and Dallas Fed indexes to 8.0 and 15.5, respectively, with broad-based gains beyond notable weakness in the employment indexes. It was the present situations index that exhibited the bulk of the post-911 hit to consumer confidence but it is expectations that have led the post-election bounce, alongside a gradual climb for the present situations index through this business cycle back toward the restrained highs of the prior cycle in 2007. Consumers and businesses are getting increasingly giddy about prospects for 2017, though production, inventory and sales data are thus far proving slow to respond.
The Rest of the Week Ahead: Various cross-currents may prevail in the last abbreviated trading week of 2016, though fundamentals should be the least dominant factor, and year-end portfolio adjustments the most relevant. Stocks remain on a sugar high in wake of the Trump election, but could take a breather, while bonds will wrestle with both index extensions and supply. While Trump’s Twitter feed over the interregnum before the inauguration may cause some isolated volatility, stocks look to finish 2016 inside some of the tightest ranges in over a year.
Main Macro Events Today
- US Pending Home Sales – November Pending Homes Sales likely to increase 0.5% from 0.1% in October – the Year on Year figure is expected to continue to show US housing remains in strong demand. The impact of rising interest rates will play out next year but for now expect at least a 1.8% year on year figure.
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