Dollar Mixed in Consolidative Trading

Startegy_ mix_dollar

  • The Monte Paschi saga continues
  • Sweden reported November retail sales and PPI
  • The US reports revised Q3 GDP, November personal spending, core PCE, durable goods orders, leading index, and weekly jobless claims
  • Philippine and Taiwanese central banks kept rates steady; Czech expected to also
  • Mexico reports mid-December CPI and October GDP proxy

 The dollar is mixed against the majors. The Swedish krona and the euro are outperforming, while the Aussie and Loonie are underperforming. EM currencies are mixed. RUB and the CEE currencies are outperforming, while KRW and MXN are underperforming. MSCI Asia Pacific was down 0.4%, with the Nikkei falling 0.1%. MSCI EM is down 0.8%, with Chinese markets falling 0.1%. Euro Stoxx 600 is down 0.3% near midday, while S&P futures are pointing to a lower open. The 10-year UST yield is up 1 bp at 2.55%. Commodity prices are mostly lower, with oil down 0.5%, copper down 1.3%, and gold flat.

The Monte Paschi saga continues. Reports suggest it is headed for nationalization after efforts to attract an anchor investor failed. Some speculate that other Italian banks face the same fate. The news has had little impact on markets, however. The euro is up on the day, trading just below $1.05, while European bank stocks are down only 0.25 and outperforming the wider Euro Stoxx 600 by a touch.

Sweden reported November retail sales and PPI. Sales rose 0.9% m/m vs. 0.5% expected. PPI rose 3.6% y/y vs. 2.2% in October, and was the fastest gain since December 2010. No wonder the Riksbank had a vigorous debate at its policy meeting this week. Three of the six board members expressed reservations about extending its QE. A more hawkish Riksbank outlook has boosted the krona this week, with EUR/SEK at its lowest since early October. The 9.60 area is the 50% retracement objective of the April-November rise. Break would target the 62% near 9.4850. The 200-day MA comes in near 9.50.

New Zealand reported Q3 GDP. It grew 3.5% y/y vs. 3.6% expected. Q2 growth was revised down to 3.4% y/y from 3.6% previously. The RBNZ doesn’t meet again until February 9. While a lot can happen between now and then, it is expected to keep rates steady at 1.75%.

During the North American session, the US reports revised Q3 GDP, November personal spending, core PCE, durable goods orders, leading index, and weekly jobless claims. Of note, the jobless claims will be for the week that the monthly BLS jobs survey is taken. Canada reports November CPI using new methodology. There are no Fed speakers today.

Philippine central bank kept rates steady at 3.0%, as expected. However, it raised the 2017 inflation forecasts for 2017 and 2018 to 3.3% and 3.0%, respectively. CPI rose 2.5% y/y in November, within the 2-4% target range and the highest since February 2015. Rates have been kept steady since it shifted to a new policy framework in May. We believe the next move is likely to be a hike in H1 2017.

Taiwan central bank kept rates steady at 1.375%, as expected. The last move was a 12.5 bp cut back in June, and then left rates steady at its next quarterly meeting in September. The bank sees limited inflation pressures next year, with the negative output gap likely to remain large. This dovish view suggests rates are unlikely to go up anytime soon. However, with the mainland China economy improving somewhat, the bank probably sees no need to ease either.

Czech central bank is expected to keep rates steady at 0.05%. Forward guidance is currently for an end to the cap around mid-2017, and is likely to be maintained. While the ECB’s extension of its QE program may lead to some debate about pushing out the timing of the cap exit, rising inflation (1.5% y/y reported for November) suggests little need to extend it again.

Mexico reports mid-December CPI and October GDP proxy. The former is expected to rise 3.41% y/y, while the latter is expected to rise 1.4% y/y. Banco de Mexico hiked a bigger than expected 50 bp last week, as inflation risks are clearly rising. PPI points to strong pipeline price pressures, and the weak peso is adding to this. Next policy meeting is February 9 while the next FOMC meeting is February 1. The Fed is unlikely to hike then, and so Banxico may keep policy steady too. However, a lot can still happen between now and then.