December opened with a wild week for markets. Stock’s Santa Claus rally, began, faltered and then recovered by week’s end. Traders in other markets, commodity, foreign exchange and interest rate, also had to deal with uncommonly large intraday moves that were swiftly reversed.
Key to the volatility was a data and event calendar that drove an appraisal, and reappraisal, of the path of Fed and ECB interest rates. That, plus expectations about a potential OPEC production cut, and of course, traders were awaiting US non-farm payrolls Friday.
As we open the new week, it’s almost certain the Fed will undertake its first rate hike since 2006, that the US employment market remains strong, the ECB needs a lesson in central bank communication strategy, and OPEC is going to keep pumping until it grinds US shale oil producers into the dust.
But, last week’s fractious trade sets up another huge week for markets in the run-up to the Fed’s decision on December 16.
Fed Chair Yellen said on two separate occasions last week that rates raised sooner would avoid “abrupt” moves later. The solid print of 211,000 new jobs in November’s non-farm payrolls Friday makes the move as close to a lock as central bank decisions can ever be.
As a result, non-farms strength helped stocks soar more than 2% higher on Friday. But after all the volatility, the week yielded gains of just 0.09% for the bellwether S&P 500 index. That’s left the ASX looking for a better start to the week Monday with ASX futures recording a 31 point rally on Friday night. However, that was after the ASX lost a little under 1% for the week.
But the big question for traders in the week ahead is what exactly does a Fed rate hike do to stocks and currencies. Oil looks likely to come under renewed pressure after talk that the Saudis might look for production cuts were scotched.
The ECB’s misstep last week, in appearing to promise more easing than it delivered, saw the Euro rally more than 400 points Thursday. Mario Draghi did his best to restore credibility in a speech to the economic club of New York Friday. He effectively promised more shock, awe and quantitative easing. But, the Euro finished the week up a little under 3% at 1.0884.
That helped the Aussie dollar retest the October highs in the 0.7880/90 region but the sellers were there again and it ended the week up around 150 points but back at 0.7339. It’s an impressive performance given crude’s crash, iron ore’s new 10 year low and a looming Fed rate hike.
How the Aussie performs in the week ahead is dependent on traders’ view about the Fed and the US dollar. But it’s also going to be influenced by three key data releases in Australia.
Tuesday sees the release of the NAB’s monthly business survey. Conditions have been strong recently, well above long-term averages. But confidence remains fragile, lagging conditions even though trading and profitability sub-indices are strong.
Business confidence was crucial part of prime minister Turnbull’s rational for the putsch to oust Tony Abbott from the Lodge. This data is a key test for him and a health check on the confidence boost the economy seems to have received since he took the top job.
Wednesday sees the release of the Westpac – Melbourne Insititute consumer confidence index. This too is a health check on the mood of the economy heading into Christmas.
But, while both these data are important, the key to the week is Australia’s jobs report on Thursday. The Reuters poll says the market is expecting a fall of 10,000 after last months outsized 58,600 increase. Unemployment is expected to increase to 6% from last month’s trend breaking 5.9%.
Also out during the week are ANZ job ads, ANZ weekly consumer confidence, AIG performance of construction index, and ABS home loan data for October.
Offshore the fun doesn’t stop either.
Monday we have speeches from BoJ governor Kuroda, and his BoJ board colleague Sato. German industrial production is out, along with UK house prices and a speech from Atlanta Fed Governor James Bullard.
Tuesday is a big day with the release of Chinese trade. Arguably, it has become the second most important data point each month for traders to watch after US non-farm payrolls. Imports and exports have been weakening recently and traders will be watching for either a turnaround or an acceleration of this trend as an indication of the strength.
Japanese GDP is also out Tuesday, along with trade. Q3 in Japan is expected to print anaemic growth of just 0.1% year on year, 0.0% for the quarter. UK IP is out and in the US the NFIB optimism index is out. Watch out for the NIESR GDP estimate in the US as well.
Wednesday we get CPI and PPI in China and German trade. Chicken or egg, German trade is a good indicator on what’s happening in China.
Thursday we get UK trade and a Bank of England rate decision and MPC vote cut. Jobless claims in the US as well as export and import prices.
To round out the week, Bundesbank president Jens Weidmann is speaking at 5am Friday morning AEDT. No doubt he’ll have a few brickbats for Mario Draghi. We also get German CPI Friday night along with US retails sales and PPI.
It’s another big week, with plenty of catalysts for trade as we head toward the FOMC meeting on December 16th.
Here’s Westpac’s excellent calendar of all the key data and events.