Weekly Recap, And Upcoming Calendar - All Eyes On Europe

Tyler Durden's picture

Goldma's FX research team summarizes the events of the week that just passed and looks at the key events in the upcoming 7 days.

Week in review

Markets traded the first week of the New Year with relative optimism--most equity markets around the world ended up for the week. The focus was on the improving US cyclical recovery as ISM (both manufacturing and services) showed robust growth, further fueled by the much higher than expected ADP print mid-week, which in turn raised expectations for the US jobs report on Friday. In the end, payrolls came in weaker than expected and the sharp drop in unemployment rate contained mixed messages as well--about half of it reflecting a drop in the labor force.
The theme of a possibly stronger US recovery also reverberated in FX markets. CAD and MXN performed relatively well. Note also that we have revised stronger our MXN and CAD forecasts recently as well as some currencies in NJA including CNY and TWD. Elsewhere, $/JPY ended the week over 2% higher, mainly driven by the mid-week US fixed income sell-off triggered by the ADP print. EUR/$ traded heavily, now back down to almost 1.29 as concerns over European sovereign issues continue to linger.
Week ahead
US data Keeping track of the pace of US recovery will probably be the main focus of markets. The key US data releases are retail sales, industrial production and CPI, which are all out on Friday. We expect a robust retail sales print for both headline and ex-autos, after the indications from the autos and the same store sales report last week. For CPI (and PPI the day before), we expect a relatively sharp rise on a headline basis, but much more muted gains ex food and energy.
Eurozone periphery bond auctions As mentioned, concerns in the Eurozone continue to rumble in the background. The Portuguese and Spanish bond auctions planned for this Wednesday and Thursday respectively will be important to monitor.
Central bank meetings We have the ECB, BoE, Korea and Thailand central bank meetings this week. We expect a 25bps hike in Thailand, in-line with consensus. For Korea, we expect a shift to a more hawkish tone, but stopping short of a rate hike. No changes or major surprises are expected from either the ECB or BoE.
Monday Jan 10th
China trade (Dec) We expect exports growth to moderate to 20.0%yoy from 34.9% yoy in November. We expect yoy imports growth to fall to 23.5%, from 37.7% in November. The trade balance will likely stay at a high level of around US$18.1 billion but lower than the US$22.9 billion in November.
China money and credit (Jan 10-15) (Dec) We expect the amount of CNY loans made in December to be around Rmb400 billion and its yoy growth to fall to 19.7% in December from 19.8% yoy in November.  M2 growth will likely fall to 19.1% yoy in December from 19.5%.
Tuesday Jan 11th
Wednesday Jan 12th

Thailand central bank meeting We expect a 25 bp hike in the upcoming policy meeting, taking the policy rate to 2.25%, in-line with consensus
India Industrial Production (Dec) We expect industrial production to grow 7.2% yoy in November, after rising 10.9% yoy in October due to a weaker infrastructure index and PMI data.
Euroland Industrial Production (Nov) German IP registered a -0.7%mom drop in November after its outsized gain in October which holds down growth in the Euro-zone aggregate IP number. Assuming the other major EMU IP prints come in as we expect (+0.4% in France, +0.2% in Italy), Euro-zone IP in November should be roughly flat on the month.
Portugal bond auctions
Thursday Jan 13th
Australia employment report(Dec)We expect more modest jobs growth in December than consensus (+15k vs consensus at +25k), though enough to keep the unemployment rate unchanged at 5.2%.
Korea central bank meeting We expect the January meeting to turn to a hawkish tone albeit stopping short of a rate hike. We maintain our view of a 25-bp rate hike in the February meeting.
ECB meeting No change to rates or major announcements expected. Trichet may be asked about sovereign purchases, but he’ll almost certainly not answer anything with respect to magnitudes or countries where they might buy
Spanish bond auctions
Bank of England meeting No change to rates or major announcements expected
US jobless claims Consensus expects initial claim at +406k, down slightly from +409k in the previous week.
US PPI (Dec) We expect a rise of +1.0% and +0.2% for headline and core, versus consensus of +0.8% and +0.2% respectively.
US Trade balance (Nov) We expect the US trade deficit to come in at around $39bn, almost unchanged from the previous month, versus consensus of $41bn.
Friday Jan14th
India WPI (Dec) We expect December WPI inflation to come in at 8.4% yoy, significantly higher than the 7.5% yoy in November, mainly due to the rise in prices of primary articles, especially food and petrol.
Euroland CPI (Dec) We already know from the flash estimate that the headline Euro-zone CPI rate rose from 1.9%yoy to 2.2% in December, but this appears to have been largely due to the energy price component. The full breakdown of components should confirm that core inflation was either broadly stable or slightly higher due to indirect tax hikes in Spain.
US CPI (Dec) We expect a rise of +0.59% and +0.14% for headline and core, versus consensus of +0.4% and +0.1% respectively.
US retail sales (Dec) The auto and same-store retail sales figures posted last week suggest that retail sales posted another solid gain in December. Our forecast is for a gain of +0.9% and +0.8% for headline and ex-autos, slightly above consensus of +0.8% and +0.7% respectively.
US Industrial production (Dec) We expect a rise of +0.5% mom, in-line with consensus.

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steveo's picture

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Reese Bobby's picture

"...focus was on the improving US cyclical recovery..."

Lordy!  The pesky real s-s-s of actual retailers are already reported to be weak and it is a fair guess profit margins were less than stellar.

Job creation is to poop on report after report...

Now I have tended to take the non-manufacturing ISM survey seriously as I thought it might be an objective poll of the real world.  But something is not adding up lately.

The only atempt to argue for a real economic recovery is the fantasyu of a "business spending" recovery.  Read: We may be screwed in our own country but CHINDIA+BRAZIL will be the new end-market demand.  I say, maybe in 20 years but not now.

What would GDP growth be w/o counting the Federal Government deficit spending?  Hint: not positive.

The clock is running...tick tock tick tock...

RobotTrader's picture

Nobody really cares about Europe right now.

Everyone is focused on the NFL playoffs.

Since Los Angeles hasn't had a team in 16 years, we were at the season opener of AMA Supercross at Angel Stadium last night.

gorillaonyourback's picture

dear santa, why didn't i get these ladies under my tree.  i remember specifically asking

voltaic's picture

An interesting take on inflation #s:

The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. We currently monitor daily price fluctuations of ~5 million items sold by ~300 online retailers in more than 70 countries.This webpage showcases examples of average inflation indexes that we created to illustrate the type of statistical work that can be done with this type of data. Our team is currently working on developing econometric models that leverage the data to forecast future trends and conduct economic research.

via The Billion Prices Project @ MIT.

BankRiot's picture

Watch the Spanish bond auctions next week.  Keep an eye on the Spanish ten year.  It has already started to spike to 5.5%.  If it gets to 7%, the the Euro is getting pretty shaky.  I think Spain is too large to "bail out" (paper over)

Dugald's picture


Understanding Derivatives

Heidi is the proprietor of a bar in Detroit . She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar.

Soon she has the largest sales volume for any bar in Detroit .

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These securities then are bundled and traded on international securities markets.

Naive investors don't really understand that the securities being sold to them as AAAsecured bonds really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, and her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from their cronies in government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi's bar.

Now do you understand?

TruthInSunshine's picture

Red Alert (really):


China's December trade surplus came in at 13 billion versus an expected 20 billion.

You want more proof that American Consumers are seriously sucking wind, and just plain tapped out, and in the biggest consumer spending month, no less?

Americans can't even afford to buy as much cheaply made, cheaply priced, Chinese shit anymore. WTFISWTH?

Oh, that's right: Unemployment is (real rate) near 17% and combined with underemployment is (real rate) about 25%, with real wages falling and benefits being eliminated.

Yep. That'll do it.

Can't wait for the massive headlines from the MSM & CNBsC on this /sarcasm.

Thepnr's picture

"China's December trade surplus came in at 13 billion versus an expected 20 billion"

This may go some way to explaining the 40% decline in the Baltic Dry Index since 1st Nov.