On a quiet night Sweden's Riksbank reinforces the change in global monetary policy

Photo: by Nick Allen, © 2016, Flickr, licensed under Creative Commons Attribution 2.0 License.

Quick Recap

Good Morning – and Merry Christmas.

Short and sweet today as this is my last note for the year before I head off on a summer break. I’ll be back on January 16

Stocks slip a tiny bit, US rates fairly calm, Riksbank signals a change in policy could be coming but otherwise its fairly calm as traders wind down for the holidays.

What You Need To Know

International

  • Subtle down moves in US and European stocks as traders ease toward the holiday break. The Dow is down 0.2% at 19942 after again making a near, by shy of, 20,000. The S&P 500 is down 0.25% at 2265 and the Nasdaq is down 0.23%.
  • In another sign that the world is moving on from low rates, low inflation, and low growth the Governor of Sweden’s Riksbank used his casting vote to break the deadlock to extend QE for another 6 month’s. Rates were left at -0.5% which is remarkable given the growth rate in Sweden this year and the expected growth rate in 2017. More remarkable the bank said in a statement that “there is still a greater probability that the rate will be cut than that it will be raised in the near term”.
  • Forex traders took this as a sign things are changing in Sweden and took USDSEK down 1.4% to 9.21.  
  • US existing home sales were up 0.7% in November. We’ll need to keep an eye on US housing in 2017 to see the impact on consumers.
  • Monte Paschi shares fell 12% last night to a new low of 16.3 Euro overnight after the embattled Italian bank said it could run out of cash by April. That the Italian government will need to bail it out is not news but the framing of the bank’s problems was more aggressive than many would have expected given it was trying to do a capital raise just this week.
  • Brazilian inflation is getting back toward 6.5% data released last night showed. That gives room for rate cuts in 2017.

Australia

  • Another good day on the ASX yesterday with the 200 index closing up 22 points, 0.4%, at 5613. That was both above the high for the year and also the highest close since August 2015. Santa Claus is well and truly in the chimney – the question between now and the end of the year is whether he gets stuck or whether the local market can run toward 5700 by New Year’s eve.
  • Honestly I’m not sure. The local market is now doing well in its own right but as we’ve discussed a lot in 2016 the ASX is still very tied to what’s happening in the US and especially the S&P 500. Here’s the chart again as a reminder. If US stocks keep rallying the ASX should get dragged along for the ride.

  • Looking at the futures market the March SPI 200 is down 7 points this morning.   

Forex

  • Besides the SEK’s Riksbank induced move it is all quiet on the major forex markets I watch. That said there is some mild weakness in the US dollar against the majors and across the Asian currency space. The Euro is at 1.0426 having recovered weakness and the Yen has gained 0.25% with USDJPY sitting at 117.55. Technically it still looks like a deeper consolidation is on the cards as long as 118.66 doesn’t break.
  • Sterling is down again at 1.2347 and the Australian dollar can’t take a trick dropping another 0.19% to 0.7247 this morning.   As with the past few days the Aussie’s move is in concert with moves in its commodity cousins the Kiwi and CAD with the latter back above 1.34 in USDCAD terms while the Kiwi has just snuck back above 69 cents.
  • Looking at the USD Index as I head toward my break it remains strong and at the highest level in years. Policy divergence will again be the big story in 2017. And that is expected to continue to support the USD. It won’t be a straight line move though I wouldn’t think.

 

Commodities

  • The volatility in crude inventory data continued for the second week with API data showing a build of around 2.25 million barrels against expectations of a draw of 2.5 million. In the aftermath the front Nymex crude contract (now February) has lost 1.6% and is back at $52.45 roughly where the previous contract expired this week.
  • Gold is at $1131 an ounce it needs to hold above $1120 if it is to avoid a trip back toward last year’s lows at $1046.
  • Copper is calm at $2.49 a pound.

Thanks for reading my stuff this year. Thanks for the feedback and encouragement as well.

Can I wish you all the best for these holiday’s and the New Year. Let’s hope 2017 is a little less wild than 2016 but continues to offer the many potential profitable opportunities of this year.

I’ll be back on January 16

 

Today's key data and events (all times AEDT)  

  • Australia - Nil
  • New Zealand - Gross Domestic Product (QoQ) (Q3), Gross Domestic Product (YoY) (Q3) (8.45am)
  • China - Nil
  • Japan - Foreign investment in Japan stocks (Dec 16), Foreign bond investment (Dec 16) (10.50am)
  • Germany - Nil
  • EU - Economic Bulletin (8pm)
  • UK - Gfk Consumer Confidence (Dec) (11.01am); Gross Domestic Product (YoY) (Q3), Gross Domestic Product (QoQ) (Q3), Total Business Investment (QoQ) (Q3), Total Business Investment (YoY) (Q3), Index of Services (3M/3M) (Oct) (8.30pm)
  • Canada - Retail Sales ex Autos (MoM) (Oct), Retail Sales (MoM) (Oct), Bank of Canada Consumer Price Index Core (YoY) (Nov), Bank of Canada Consumer Price Index Core (MoM) (Nov), Consumer Price Index - Core (MoM) (Nov), Consumer Price Index (YoY) (Nov), Consumer Price Index (MoM) (Nov) (12.30am)
  • US - Chicago Fed National Activity Index (Nov), Personal Consumption Expenditures - Price Index (MoM) (Nov), Personal Spending (Nov), Core Personal Consumption Expenditure - Price Index (YoY) (Nov), Personal Income (MoM) (Nov), Core Personal Consumption Expenditure - Price Index (MoM) (Nov), Personal Consumption Expenditures - Price Index (YoY) (Nov), Continuing Jobless Claims (Dec 9), Initial Jobless Claims (Dec 16), Gross Domestic Product Price Index (Q3), Gross Domestic Product Annualized (Q3), Personal Consumption Expenditures Prices (QoQ) (Q3), Core Personal Consumption Expenditures (QoQ) (Q3), Durable Goods Orders (Nov), Durable Goods Orders ex Transportation (Nov) (12.30am); Housing Price Index (MoM) (Oct) (1am); CB Leading Indicator (MoM) (Nov) (2am); EIA Natural Gas Storage change (Dec 16) (2.30am); Kansas Fed manufacturing activity (Dec) (3am)

 Have a great day's trading

 Greg McKenna

Chief Market Strategist

www.gregmckenna.com.au

 

Please note: I usually look at 2 or 3 charts each day. These will not always be the same charts and the above is meant to help guide traders thought processes not offer advice.

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