USA markets closed up on Monday with certain major indices setting record highs, investors entered the last two trading weeks before Xmas, whilst keeping their minds focused on the FOMC meeting, which is due to conclude on Wednesday. The overall consensus is leaning towards a rate rise to 1.5% being announced, with the FOMC keeping to its commitment to raise three times in 2017, as the Fed begins to normalise interest rates over the medium term. Investors will also turn their attention to the narrative accompanying the interest rate policy announcement, for any clues in relation to monetary policy/forward guidance for 2018.
Quantitative tightening was a phrase that began to emerge in 2017; the Fed beginning to divest of its gargantuan $4.5 trillion balance sheet, acquired as the central banks stimulated the economy, through an exceptional programme of loose monetary policy since 2017. The FOMC/Fed has begun to address one side of the programme, by (perhaps) raising rates three times over the course of 2017, how they begin to divest of the balance sheet is a far trickier problem. However, as outgoing chair of the Fed Janet Yellen stated, “It’ll be like watching paint dry”. The Fed could in theory take decades to sell off their assets back into the markets, in order to create the minimum of impact and disruption.
On an otherwise thin day for economic calendar news relating to the USA, the SPX closed up 0.32%, to set another record closing high, whilst USD/JPY rose by 0.1%, the U.S. dollar also rose versus the U.K. pound, but slipped versus the euro and Swiss franc. Gold continued its serious slump, now down to $1240 per ounce, whilst oil rose, particularly Brent crude; reacting to the news that the U.K. main pipeline, which supplies 40% of oil energy for the country, is currently shut down, as it requires major repairs.
Brexit was back on the agenda on Monday, as prime minister May listened to plaudits from her fellow Tory MPs in the House of Commons. This came after her chief Brexit minister appeared to row back on the various commitments she’d made in order to perhaps move to stage two in the negotiations; discussing a trade deal. He clumsily described the deal as not legally binding on Sunday political TV. programmes in the U.K. As a consequence of the back tracking investors (once again) lost faith in the process and the value of the U.K. pound, sending it down versus its major peers, sterling lost circa 0.3% versus the U.S. dollar and approx. 0.4% versus the euro. In other U.K. economic news asking house prices in the U.K. fell by 2.4% in a single month, which is quite a significant fall, based on historical precedents.
EURO
EUR/USD rose by circa 0.5% on the day, through R2, before giving up some of the gains late into the New York session. Ending the day at 1.177, up circa 0.2%, below the 100 DMA sited at 1.180. EUR/GPB has made a significant recovery since breaching 0.87 to the downside early Friday morning, closing Monday out at circa 0.88, up 0.3% whilst breaching R1, the currency pair has risen back above the critical 200 DMA, sited at 0.979. The euro fell sharply versus the kiwi dollar, as did the majority of currencies during Monday’s trading sessions, it also fell versus the Swiss franc, EUR/CHF ending the day down circa 0.2% at 1.167.
U.S.DOLLAR
USD/JPY traded in a tight range on Monday; falling through the daily PP down circa 0.2%, before reversing the daily trend to close out up circa 0.2% at 113.5, close to a four week high. USD/CHF fell by circa 0.2% to 0.991, close to S1. USD/CAD traded in an extremely tight 0.2% range throughout the day, closing out near to flat at 1.285 and on the daily PP.
STERLING
GBP/USD fell by approx. 0.3% on the day, trading in a tight bearish range throughout the trading sessions, ending close to S1. The 100 DMA is sited at 1.318, a level not tested since November 14th. Analysts may be pondering that if the FOMC announces a rate rise on Wednesday, this area could be retested. However, a retest of the 1.3200 handle might be more realistic, in the short term. GBP/NZD fell by circa 0.8% and versus: CAD, JPY and CHF sterling fell by on average 0.3% on the day.
GOLD
XAU/USD maintained its recent momentum sell off during Monday’s trading sessions, the fall since the November 26th high of circa 1298 has been dramatic, price reached a low of 1240 during the late period of Monday’s New York session, after initially rising to a daily high of 1251, during the London/European session.
EQUITY INDICES SNAPSHOT FOR DECEMBER 11th.
• DJIA closed up 0.23%.
• SPX closed up 0.32%.
• FTSE 100 closed up 0.80%.
• DAX closed down 0.23%.
• CAC closed down 0.23%.
KEY ECONOMIC CALENDAR EVENTS FOR DECEMBER 12th.
• GBP Consumer Price Index (YoY) (NOV).
• GBP Retail Price Index (YoY) (NOV).
• GBP Producer Price Index Input n.s.a. (YoY) (NOV).
• EUR Euro-Zone ZEW Survey (Economic Sentiment) (DEC).
• EUR German ZEW Survey Expectations (DEC).
• USD Monthly Budget Statement (NOV).
• AUD RBA Governor Lowe Gives Speech in Sydney.
