Key Weekly Events – 15th to 19th December
US Dollar Maintains status quo
The much awaited final Federal Reserve monetary policy for the year ended without a bang as the policy member left policy unchanged while continuing to let the markets speculate on interest rate hikes. While the Fed was upbeat on the labor market and the economic growth in general the downward revision to inflation does bring a bit of uncertainty in regards to the timetable for the rate hike. As the markets wind down for the end of year holiday, volumes are expected to slow down ahead of a few releases due next week. Economic fundamentals this week continued with the general trend of painting a mixed picture.
- Empire state manufacturing index -3.6 vs. 12.1 forecasts
- Building permits slow to 1.04mn vs. 1.06mn forecasts
- Flash manufacturing PMI 53.7 vs. 56.1
- CPI m/m -0.3% vs. -0.1%; Core CPI m/m 0.1%, unchanged
- Fed funds rate at 0.25%
- Flash services PMI 53.6 vs. 57.1
- Philly Fed manufacturing index 24.5 vs. 26.3
Euro awaits ECB’s QE
The Euro single currency was mixed this week rising against the weaker Australian and Canadian dollar but remaining mixed against the British Pound and weaker against the US Dollar. Economic data from the region this week showed a modest pickup in consumer and business confidence while PMI’s continued to be broadly mixed. EURUSD made a weekly touchdown to 1.22717 lows and it is unlikely that we can expect to see a break down below this level at least in the short term.
- German ZEW economic sentiment 34.9 vs. 19.8
- German flash manufacturing PMI 51.2 vs. 50.4; services PMI 51.4 vs. 52.6
- France flash manufacturing PMI 47.9 vs. 48.7; services PMI 49.8 vs. 48.6
- Eurozone flash manufacturing PMI 50.8 vs. 50.5; services PMI 51.9 vs. 51.6
- Eurozone ZEW economic sentiment 31.8 vs. 20.1
- Eurozone final CPI 0.3%; core CPI 0.7% as expected
- German Ifo business climate 105.5 vs. 105.6
Yen eases from safe haven flows
Last weekend’s snap election affirming Shinzo Abe’s leadership turned out to be a non-event with the Yen not reacting much but instead gaining on safe haven flows in the run up to the FOMC meeting. The Yen gained across the board only to ease back after the FOMC statement. BoJ left its monetary policy unchanged this time around but further easing could be expected in the medium term.
- Tankan manufacturing index 12 vs. 13; non-manufacturing index 16 vs. 14
- Flash manufacturing PMI 52.1 vs. 52.3
- All industries activity m/m -0.1% vs. 0.2% forecasts
Sterling still not sure
The British Sterling continued to drift aimlessly within a tight range against the Greenback. Economic data released this week was mixed with no major shifts to the interest rate vote from the BoE’s MPC. Inflation continues to be the biggest drag on the economy while the labor market continues to improve at a steady pace including the average earnings index. Retail sales for the previous month beat estimates giving a boost to the retail sales on a yearly basis as well. The question however is if this boost in retail sales is due to the Black Friday discounts or if it really underpins the growing wages in the country.
- CPI y/y 1% vs. 1.2%; Core CPI y/y 1.2% vs. 1.5%
- Average earnings index 3m/y 1.4% vs. 1.3%
- Unemployment rate 6%, unchanged
- Retail sales m/m 1.6% vs. 0.3%
SNB introduced negative deposit rates
The Swiss National Bank surprised the markets this week introducing negative deposit rates at -0.25% on all the sight deposits with the Central Bank. The move was unexpected as the markets were expecting to see the SNB make its move after the ECB introduced its QE plans. However, safe haven flows especially on account of the Russian crisis prompted SNB officials to make it less attractive to hold investments in the Swiss Franc. While the Franc initially weakened it soon settled back giving up close to half of its gains against the Euro. Expect to see Fx interventions by the SNB in the coming weeks.
- PPI m/m -0.7% vs. 0.2%
- Libor rate -0.25%