Dollar: The Dollar has been losing steam in the last month, stabilizing at about 1.13 with respect to the Euro, levels which have not been observed since July 2017. The Fed’s revised suggestion that the interest rate is currently “close to neutral levels” should signify fewer rate hikes in 2019, although they are still due to deliver another rate hike on December 19. Other important dates include the NFP on December 7 and the November CPI on December 12.
Euro: Developments in the Euro have been relatively mixed, as the positive Brexit development was counteracted with uncertainty as to whether it will gather enough Parliamentary support. In addition, the unresolved issue of the Italian budget still looms over the region. The next ECB meeting on December 13 will likely confirm the end of QE in the continent, while it should also provide better signals for the rate hike in September 2019. Soon after, on December 14 and 17 the PMIs and CPI are out, with the rest of the month not having many important announcements.
Sterling: After registering large gains in response to reaching an agreement over Brexit, Sterling reversed back to 0.89 with respect to the Euro, after uncertainty over whether Parliament will support Teresa May’s agreed plan. Hence, the most important day for Sterling is December 11, when the vote will take place, while the next BoE meeting will take place on December 20, where, if a Brexit deal is reached, a rate hike will likely take place. Another important day is December 10 when industrial production and GDP come out.
Yen: Higher than expected imports, despite strong export performance led the Yen to depreciate against the Dollar, with inflation remaining at the same levels as last month. The economy appears to have been stabilized with inflation slowly but steadily increasing, even though household spending was negative. The BoJ rate decision on December 20 is not expected to post surprises.
Aussie: The Aussie has gained against the Euro and the Loonie again, after a large improvement on the trade balance, despite slowing Retail Sales and a continued reduction in mortgage and investment lending. December starts with the Trade Balance on December 3, with the interest rate decision on the following day not expected to register any change. Q3 GDP data will be released on December 5.
Loonie:The decline in Oil prices pushed the Loonie down in November, after a worse than expected overall macroeconomic performance. No change is expected at the December 5 BoC meeting, with labour market data releases on December 7.
Emerging: The Ruble has moved in a political and not an economic tune last month, something which is expected to continue unless the Crimea tensions subside. Following the rate hike, the ZAR has gained against the Dollar albeit the South African economy appears fragile. The Turkish Lira appears to have overcome its issues, a trend which is expected to continue conditional on no negative developments in the economy. The Peso continues its decline with respect to the Dollar.
Gold: As expected, when risk aversion rises, the price of Gold jumps. In November, following a short bout around USD1200, Gold bounced to USD 1220, as the Dollar lost value after the Powell speech. The stock market performance was not as important to the price of Gold as previous occasions; however, as interest rates around the world rise, the price of Gold is expected to decline further, likely below the USD1200 mark in the near future, even though trade tensions and uncertainty over Brexit and Italy could push the price up.
Silver: The price of Silver appears to have more or less stabilized around the USD14-14.70 channel since September. Silver registers a strong positive correlation with Gold, however, its reactions are much smaller. The longer-term trend appears to suggest a stabilization move, moving sideways in the channel, with its future also possibly affected by the potential for interest rate hikes across the globe.
Oil: Oil dropped significantly in November, entering in bear area and reaching a low of USD50.4, following increases in Saudi and Russian production during the month. In addition, weak earnings performance for US stock markets and a reduction in demand from China also put downwards pressure on the price. Russia and Saudi Arabia are expected to curb production in December which should create some upwards pressure. The OPEC meeting on December 6 is also likely to provide insights to the future of Oil supply.
US: The large drops observed in October were somehow eased in November, with the month ending with increases in the three indices (US30, US100, and US500). What now appears to have been a large correction after stabilizing around the 2650-2800 levels, the indices recorded large increases aided by Powell’s dovishness. Lower interest rates should be beneficial to the economy as they allow for more spending, despite the increase in production costs, especially among automobile manufacturers, as a result of the China tariffs. Bulls are expecting a year-end rally, although the expected rate hike can also exert downwards pressure on the indices.
Europe: Stock markets in Europe remained relatively flat in November. Despite the reaching of a Brexit agreement, the UK100 remained roughly at the same levels as the beginning of the month, although exhibiting some volatility. The GER30 remained flat, fluctuating in the 11063-11500 channel. In contrast, the EUR50 moved in a downwards channel, registering significantly more volatility but ending exactly where it started. The notable difference between European and US Indices is that the latter have been recording less downside pressures, supporting the argument that the China trade tariffs are the main cause of the decline.
Bitcoin:Following a three-month low volatility regime, Bitcoin, collapsed from the $6000 level in mid-November, reaching a low of $3753, before rebounding over $4000 in the last days of the month. The future of Bitcoin appears to be clouded by the demand for private transactions while the technical data support the view that a price increase will be observed, even though it will perhaps not be powerful enough to push it back up to $6000. Still, its price appears to have been affected by Dollar lows, suggesting that it could possibly act like a safe haven asset when risk aversion increases.
Ripple’s price was affected by the Bitcoin drop, despite the fact that, in theory, the cryptocurrency is more independent than its peers, likely due to its centralized nature. Ripple’s price declined to USD0.35, approximately the same drop percentage-wise as Bitcoin. A similar path was observed for Ethereum and Litecoin, with the latter registering a small increase by the end of the month, exactly as Bitcoin’s price behaved. Again, we would like to underline that the three Cryptos cannot avoid following the Bitcoin path in the future, as evidenced by their recent behaviour.
US10Year:The rise in risk aversion observed in November reversed the bond yield increases since August and subsequently pushed prices up. This development, attributed mostly to the trade tensions and the overall uncertainty in the US economy and the stock market drop in late October does not appear to have reached an end. However, expectations of a Fed rate hike in December, should put upward pressure on the yield, even though fewer hikes are expected over 2019.
UK Gilt: Despite the positive news on Brexit, UK’s yields have also experienced an increase in November, though to a small extent. Increased uncertainty about the final outcome of the Brexit agreement – as Theresa May faces opposition within her own party – pushed investors away from the bond. In the case where a Brexit deal is reached, bond yields should increase as BoE is expected to step up its rate hike schedule, and the possibility for another rate hike in 2018 still exists.
EUBund: The Bund yield decreased significantly in the first days of October as US uncertainty rose, the Italian budget was rejected by the European Commission and it is uncertain whether the Brexit deal is will pass through the UK Parliament. The expected end of QE in the December ECB meeting should put some upwards pressure on the yield, albeit at a slow rhythm, given that the anticipation of rate hikes is only for Fall 2019.
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Dr Nektarios Michail
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