19 December 2014
This will be my last OPI for the year and I will return to print on Jan 12th. It’s been another fascinating year with the big decline in the NZD just what the doctor ordered and further declines for the ‘bird’ next year remains one of my favourite themes. Merry Christmas to you all. Have a great break and we look forward to another prosperous new (trading) year.
# ANZ NZ Business Confidence
# NZ Credit card Spending
# Japan Monetary Policy Statement
# E.U. Economic Summit
# A bumper night for global equity markets with the EuroStoxx600 posting its biggest gain in 3 years and the U.S. markets the biggest 2 day gain in a number of years. The moves, ostensibly built on the Fed communique of yesterday, seems somewhat surprising from this perspective given the Fed was arguably a tad more hawkish effectively saying that it could begin raising rates as early as April 2015, much sooner than the market has been pricing. Yes the Fed will be patient and no one expects rates to be pushed higher in the (quick) fashion of previous hiking cycles but none the less the moves have taken us a bit by surprise. The other interpretation of course is that the market feels if the U.S. economy is seen as healthy enough by the Fed to handle hikes then is that’s good enough to warrant higher equity valuations. The Stoxx finished up a huge 2.95% whilst the S&P500 is closing up 2.40 %. The Dow has gone out right on its highs up 420 points. Merry Christmas indeed!
# Another wild session for the markets’ current primary focus, crude oil. An early 5%+ rally was seen before the move was all (and more) unwound as Saudi Arabia’s oil minister rebuffed any ideas that the Kingdom and its fellow OPEC members had begun considering production cuts to stem the rout. A week ago equity markets would have fallen with the oil price back near its lows but yesterday Fed chair Yellen opined that the drop in oil was good for the economy hence the decoupling in the oil/equity correlation of recent weeks.
# U.S weekly jobless claims improved suggesting the labour market there continues to strengthen. Initial claims for state unemployment benefits dropped by 6,000 to a seasonally adjusted 289,000 for the week. The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, slipped by 750 to 298,750.
# The Fed’s Philadelphia survey of manufacturing remained positive but there was a sharp drop on activity in December with the index recording a still healthy 24.5 in Dec but down sharply from 40.8 in November. The fall needs to be seen in the context of the fact that Nov. was its highest level in over 20 years but does go to our expectation the U.S. data will soften going forward. The pullback by the headline index reflected notably slower growth in both new orders and shipments. The new orders index plummeted to 15.7 in December from 35.7 in November, while the shipments index plunged to 16.1 from 31.9.
# The USD put in a particularly mixed session as the EUR fell, GBP, NZD and AUD rallied whilst the JPY is essentially unchanged from levels late yesterday. The pound rallied , thanks to a bumper UK retail sales report (+1.7% m/m vs +0.3% expected) whilst the CHF led the EUR lower after the Swiss National Bank surprised markets by introducing a negative deposit rate. The SNB’s move looks to be in anticipation of the ECB easing policy early in the new year, which would have put pressure on the EUR/CHF 1.20 floor.
# U.S. treasuries took the Fed on their word with the benchmark 10 year note yield rising to 2.20% from 2.10% prior to the FOMC statement.
# An early general election in Greece is looking more likely after the first round of a snap presidential election failed to win support for Greek Prime Minister Samaras’s candidate. There is a great possibility that the left-wing, anti-austerity party Syriza could win such a vote, potentially putting the country's international bailout into jeopardy. Greece appears to be on track for a primary budget surplus in 2014, but the country still has an enormous debt pile of 175.5% of GDP.