This week's pattern remains
intact. The US dollar continues to trend lower against the European
currencies, but is firmer within the dollar-bloc and against the yen.
Spanish and Italian bond yields are lower, while the long-end of the
Japanese curve is heavy. Equity markets are finishing the year with a
firm note, with board gains in Asian, with the notable exception of
Shanghai and Jakarta, and in Europe, with the exception of Stockholm.
The
euro is at 7-month highs today, pushing toward $1.3300. The next target
is near $1.3385. Sterling has been bid to near the year's high set
in late September just above $1.6300. There is little chart resistance
until closer to $1.6500. The dollar's slide against the Swiss franc
has extended to CHF0.91 and appears headed for CHF0.9000.
The
dollar-bloc is not participating in this move against the greenback.
This week, for example, the New Zealand dollar has fallen as almost as
much as the yen (1.03% and 1.08% respectively). The Australian and
Canadian dollars are off 0.04% and 0.57% respectively.
There are a few macro-developments to note:
1.
Japan: The BOJ meeting concludes tomorrow. Abe continues to press his
case. There is more talk of open-ended asset purchases, like the Fed
and ECB, but what does it mean in practice? It does not mean
QE-infinity as some critics claim. It seems to mean no pre-determined
limit. The Fed is clearly specifying the amount it intends to purchase,
which in 2013 seems to be roughly the equivalent of the budget
deficit. The ECB has not bought a single bond under its
open-end commitment. It imposed its own limits in terms of
duration. The BOJ has extended its asset purchase program several
times this year. It shows a willingness to continue to do so. It seems
like only a slight difference, largely in terms of presentation, of an
open-ended commitment.
2.
The German IFO survey was firmer than expected, with the headline up to
102.4 from 101.4 in November and expectations for an increase to 102.
It was driven by a rise to 7-month highs in the expectations component.
However, the assessment of current conditions actually fell to 2.5 year
lows.
3.
Minutes from the BOE's MPC meeting earlier this month did not appear to
contain surprises. By an 8-1 vote, it did not renew its gilt purchase
scheme and for nearly four years (45 months), it kept the base rate
steady. The recent uptick in inflation and some administered price
increases likely to filter through into early next year, the MPC may be
reluctant to purchase more gilts initially. A six month review of the
Funding for Lending Scheme is due in January. The preliminary evidence
seems to suggest it has been better more mortgage lending than corporate
lending.
4.
Italian politics remains unsettled. After pulling support for the
technocrat government, forcing election 6-8 weeks earlier than they
otherwise would have been, Berlusconi now is urging a delay in the
election, seeking more time to campaign. His party is playing for time
in parliament as well. It means that the 2013 budget is unlikely to be
passed this week, which had been expected. The election now looks
likely for Feb 24, but it could be pushed into March.
