TradeTheNews.com Weekly Market Update: The
Reflation Trade Exhales Into Year End
Fri, 30 Dec 2016 16:10 PM EST
The last week of trading saw a mixed global reaction to the year's end. The
FTSE managed to reach new all-time highs and closed the week up 1.4%, while the
Shanghai and Hang Seng also finished up on the week. The US instead had a hard
time during the last four sessions of the year as profit taking and pension fund
rebalancing, in a high vacation period, took its toll. Trading volumes have
reflected the absenteeism with average volumes on the NYSE at 35% below the 3
month average. For the week, after getting to within 20 points of the 20,000
milestone the DJIA lost 0.8%, while the Nasdaq dropped 1.5%, and the S&P500
fell 1.1%, causing the S&P to fall just short of a double digit percentage
gain on the year.
US Treasury yields have declined as investors bought low-risk fixed income
assets, sending 10-Year Treasury yields to a 2-week low. However, going short
continues to be the smart-money play. As the market continues to short sell
Treasuries, Repo rates for some specific bonds have become extremely expensive,
reaching negative yields on many parts of the curve.
The US dollar reached new highs not seen for 14 years against various
currencies before retracing to lower prices on Friday. Against the Euro, at one
point the US dollar had lost 1.6%. Various FX brokers reported a lack of
liquidity during Asian trading hours causing automatic orders to be set off. As
price continued to move higher, stop loss orders to cover shorts were sparked,
increasing the upward momentum.
China has had a hard week defending its currency against further devaluation,
as the Yuan is set to finish the year with its biggest 1-year decline since
1994. The government has said it will redesign the Yuan currency basket to
include another 11 currencies in an attempt to water down the effect of the US
dollar and camouflage the ongoing capital outflows.
The Italian government eventually did need to step in to save the oldest
banking institution in the world, Monte dei Paschi, mainly to avoid the NPL
crisis of Italian lenders from spreading any further. The lender was unable to
find private backing to re-capitalize and was given an estimate of €8.8 billion
of funding by the ECB. The Italian central bank has said it sees the cost of
saving Paschi at €6.6 billion, lower than the ECB estimate, but higher than the
€5 billion sought by Paschi initially.
In a slow corporate news week, a few headlines stood out. On Tuesday, Amazon
reported over 1 billion items shipped with Prime this holiday season worldwide,
noting their Echo Dot was the best-selling, most gifted item on Amazon.com. It
was reported on Wednesday that Kate Spade was mulling a sale, and analysts
noted that Coach and Michael Kors both have adequate cash to fund a potential
acquisition. And on Friday, Nikkei estimated that Apple would reduce its iPhone
production by 10% in Q1 due to sluggish sales, sending shares of some Apple
suppliers lower to end the week.
MON 12/26
6502.JP: May take an extraordinary loss of ¥100B ($860M) on US nuclear ops -
Nikkei
*(JP) JAPAN NOV NATIONAL CPI Y/Y: 0.5% V 0.5%E (2nd straight rise); CPI EX
FRESH FOOD (CORE) Y/Y: -0.4% V -0.3%E
TUE 12/27
*(US) DEC RICHMOND FED MANUFACTURING INDEX: 8 V 5E
*(US) DEC CONSUMER CONFIDENCE: 113.7 V 108.5E (highest since Aug 2001)
WEDS 12/28
*(UK) NOV BBA LOANS FOR HOUSE PURCHASE: 40.7K V 41.4KE
(US) Association of American Railroads weekly rail traffic report for week
ending Dec 24th: 496.6K carloads and intermodal units, +27% y/y
(CN) China Commerce Ministry (MOFCOM) Spokesperson Shen: More concerned about
future Fed rate hikes; Expect to see slower growth in auto sales in 2017
KATE: Reportedly considering sale of the company; has hired advisers to contact
potential buyers - press
THURS 12/29
*(EU) EURO ZONE NOV M3 MONEY SUPPLY Y/Y: 4.8% V 4.4%E
*(US) INITIAL JOBLESS CLAIMS: 265K V 265KE; CONTINUING CLAIMS: 2.10M V 2.03ME
FRI 12/30
(RU) Russia President Putin refutes earlier reports that Russia will expel
diplomats in retaliation; will consider Trump's actions on any measures
(US) DEC CHICAGO PURCHASING MANAGER: 54.6 V 56.8E
AAPL: May reduce iPhone production by 10% in Q1 due to sluggish sales - Nikkei
