Market Overview 2017-12-22
We now know that the tax reduction plan is happening, the fiscal stimulus spend (as much as one trillion dollars promised to rebuild crumbling infrastructure), has curiously disappeared from the Republicans’ and Trump’s narrative over recent months. The potential infrastructure spending plan has had a negative effect on the U.S. dollar throughout 2017, and despite the Fed keeping to its promise to raise rates by three times in 2017 investors failed to bid up the dollar, which has fallen considerably versus two of its main peers; euro and sterling throughout the year. The U.K. BoE and the Eurozone ECB have delivered dovish statements during the year with regards to interest rare rises. In terms of monetary policy actions; the BoE felt forced to raise rates by 0.25% to 0.5% in November, in order to counter inflationary pressures, whilst the only hawkish move the ECB conducted was to taper its APP (asset purchase programme) by €20b a month.
Despite this lack of action both central banks’ currencies rose versus the U.S. dollarduring 2017. The Fed has (once again) recently committed to a programme of interest rate rises in 2018, suggesting another three rises of circa 0.25% throughout the year and stated that it’s also prepared to look for methods to divest from its $4.5 trillion balance sheet. And yet despite this mildly hawkish proposal, the U.S. dollar has still failed to make significant gains versus both peers. During 2018 it’ll be fascinating to observe if the dollar does in fact rise, should the three rate rises take place. If it does then the BoE and ECB may be forced to follow suit and begin their own programme of normalisation.
With regards to economic calendar news on Thursday, USA GDP growth missed forecast, by coming in at 3.2% YoY, whilst initial and continuous jobless claims data also missed the predictions. Japanese store sales beat forecasts, whilst the BOJ kept interest rates at -0.1%. Swiss import and export figures were favourable and beat expectations, as did the trade balance which also improved MoM. The U.K. public net borrowing figure for November improved slightly, and Eurozone consumer confidence rose moderately. U.K. car production has recorded the biggest yearly fall in 2017, since the 2009 recession. Canada’s encouraging retail sales figures, showing a significant surge to 2.5% in October, twinned with CPI rising moderately, caused investors to buy the Canadian dollar based on the belief that the RBA now has the necessary ammunition to raise interest rates again early in the new year. CAD rose versus the majority of its peers, rising by circa 1% versus USD. Gold maintained its recent rise from the December 12th recent low of 1236, to at one stage reach the 200 DMA of 1269, before giving back some gains.