Written Commentary
Global equity markets were modestly lower overnight with the markets in Brazil and Mexico bucking the trend with slight gains. International economic data overnight was absent with the trade looking ahead to US November pending home sales which are expected to come in at 1% versus 1.9% in October. The US will also see a Dallas Fed manufacturing business survey for December with last month’s reading a negative 10.4. This week will be truncated again because of another US trading holiday, but there will be several house price reports, initial claims and an FOMC meeting minute’s release.
STOCK INDEX FUTURES
As indicated already, global equity markets were modestly lower to start the new trading week with Brazil and Mexico the only markets starting the week out on a positive note. While markets remain hopeful of a Ukraine/Russian peace deal, Chinese wargames around Taiwan and news that Japan will dramatically increase its defense budget creates a measure of geopolitical anxiety in the Pacific Rim which in turn mutes speculative interest in those regional equity markets. On a positive note, China announced it would reduce import tariffs on resource-based commodities like recycled black powder for lithium-ion batteries, but will also reduce levies on medical products including artificial blood vessels and diagnostic kits for infectious diseases.
CURRENCY FUTURES
While the dollar has managed a minimal bounce off last week’s low, the downtrend looks entrenched from a technical perspective. In fact, we suspect the markets are anticipating leadership at the Federal Reserve to be predominantly more dovish than the present regime and the president is apparently poised to announce his pick for Chairman of the Fed. Furthermore, the trade continues to view the US economy as “more vulnerable” and the dollar has consistently paid a price (since the end of November) for its softer data despite the last Fed cut being viewed by the trade as a “bearish rate cut” or as some will suggest a one and done.
INTEREST RATE MARKET FUTURES
Treasury prices have rebounded and have reached 11 day highs with March bonds currently 1 ½ points above the quasi double low from the middle of this month. While at present there is only a one in five chance the US Fed will cut rates next month, retail gasoline prices are coming down and if the economy is slowing we expect various inflation readings to moderate in upcoming readings and that should increase the odds of a January rate cut over the coming weeks.
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