Fundamental Analysis 07.12.2017 - Market Outlook

07 / 12 / 2017 | Market News
I think there’s a bigger concern for the dollar coming up though as the market may begin to focus on the possibility of another US government shut-down. The money to fund the government runs out tomorrow and Congress doesn’t seem to have come up with any solution to the problem yet. That will certainly be the focus of attention today. As the graph below shows, the price of US T-bills maturing after today has plunged (= the yield has risen) compared to those maturing today, indicating that the market is seriously concerned about the possibility of the government running out of money. If there is a shut-down, USD is likely to fall sharply.

CAD was the big mover overnight after the Bank of Canada left rates unchanged and reiterated that it “will continue to be cautious” about future rate hikes. Some analysts were expecting that following the recent improvement in the labor market, the Bank would take a more hawkish stance. As a result, the market pushed back the expected time for the next rate hike and CAD fell. The 2.3% fall in oil prices didn’t help, either.

NZD fell after milk co-operative Fonterra lowered its forecast payment to farmers by 35 cents to NZD 6.40/kg.

Today’s market

Germany releases its industrial production data early in the European day today. Unlike the factory orders, industrial production is expected to show an acceleration in output on both a month-on-month and year-on-year basis. I assume that would tend to confirm the other information that we’ve been seeing about the healthy German economy and would therefore be positive for the euro.

Swiss FX reserves are forecast to be up CHF 3.0bn from the previous month. This compares with a 91-pip rise in EUR/CHF during the month. As the graph shows, this is a greater-than-usual rise in EUR/CHF in relation to the rise in reserves. This suggests that the Swiss National Bank (SNB) doesn’t have to intervene as much as it did previously in order to push the pair higher.

Although we can’t draw much conclusion from one month’s data, it may be that with the European Central Bank (ECB) announcing the eventual end of its quantitative easing program, the market is assuming that the Swiss National Bank will be the last player on the block to stop its extraordinary measures. They would naturally start factoring in more spread widening between the two currencies. If the figures do show that this is the case, they could be negative for the CHF.

The Halifax house price index is expected to show a slower pace of month-on-month growth and slowing year-on-year growth in houses in the UK. This would be in line with the Nationwide house price index, which came out last week and also showed a slowdown. If it comes out as expected, it won’t be much of a surprise to the market and therefore probably won’t cause much of a stir.

The second estimate of Q3 EU GDP was unchanged from the first estimate. Looking at the data from 2010, there’s only a 10% chance that the third estimate will be revised, and even if it is, it’s usually only revised by 10 bps.

Mario Draghi will speak today, but not in his capacity as the President of the ECB but rather as the Chair of the Group of Governors and Heads of Supervision at the Bank for International Settlements. This is the oversight body of the Basel Committee on Banking Supervision, the primary global standard setter for the prudential regulation of banks.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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