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Market panorama. 14 December 2017

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I. Market focus:

14/12/2017

At the beginning of the Thursday session, market participants continued to assess the outcomes of the meeting of the Federal Open Market Committee (FOMC), which ended the day before. The FOMC’s decision fully coincided with the expectations: the fed funds target range was raised by 25 basis points to 1.25 percent to 1.50 percent, the estimate for economic growth was improved, while inflation forecast was left unchanged. Despite the Fed’s latest rate increase, the dollar fell, as such a decision of the regulator had already been priced in. But the weakness of the dollar was largely attributable to a reassessment by market participants of the impact of the tax cut in the U.S. as well as doubts about the size of this cut. At the moment, the further decline of the U.S. currency looks limited. After the Fed meeting, the main driver for the dollar is seen to be the process of promoting tax reform in the United States.

Today, the focus of market participants will be on the meetings of three central banks - the Swiss National Bank (SNB), the Bank of England (BoE) and the ECB. It is expected that none of the three regulators will change the parameters of their monetary and credit policy at the December meeting. At the same time, the accompanying statements of central banks, as well as the press conferences of their governors, may shed light on further plans of regulators, thus provoking increased volatility in the markets. The outcomes of the meeting of the SNB will be announced at 08:30 GMT (the press conference of the regulator is set to start at 09:00 GMT), the BoE’s policy statement will be published at 12:00 GMT and the ECB’s decision will be unveiled at 12:45 GMT (press conference of the central bank’s president is scheduled to begin at 13:30 GMT).

In addition to the outcomes of the central banks’ meetings and press conferences of their heads, investors also will pay attention to the UK and U.S. retail sales statistics (09:30 GMT and 13:30 GMT, respectively), the speech of the governor of the Bank of Canada (BoC) Stephen Poloz (17:25 GMT) and the Japanese Tankan indices (23:50 GMT).


II. The market highlights are:

  • Federal Open Market Committee (FOMC) released its latest monetary policy decisions on Wednesday afternoon, following the December meeting. As widely expected, the U.S. regulator increased its target range for the federal funds rate by 0.25 points, from 1.00 to 1.25 percent to 1.25 percent to 1.50 percent. In its statement, the FOMC said that the decision was hinged on “realized and expected labor market conditions and inflation.” Committee noted it continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. At the same time, the inflation on a 12‑month basis was projected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent target over the medium term. The projection materials, released along with the policy decision statement, showed the Fed officials raised their median estimate for annual gross domestic product (GDP) growth in 2018 to 2.5 percent from 2.1 percent. At the same time, the committee’s median forecast for long-run expansion was unchanged at 1.8 percent. The FOMC did not mention why it expected growth to accelerate, though the Fed Chair Janet Yellen and others in past speeches have expressed some optimism that more aggressive fiscal policy could be a help. The forecasts also showed little change in the inflation outlook over the next three years. The "dot plot," part of the FOMC's economic projections, revealed that the FOMC member anticipated three rate hikes in 2018 and two in 2019. Both figures were unchanged from the projections released in September.

  • House and Senate Republicans on Wednesday reached a preliminary agreement on their final tax bill. The compromise bill proposes cutting the corporate tax rate to 21 percent, little higher than the 20 percent in the House and Senate versions but much lower than the current 35 percent. The bill would also lower the top individual tax rate to 37 percent from the current 39.6 percent, a larger cut than the Senate version had proposed (to 38.5 percent).

  • The Labor Department reported Wednesday the U.S. consumer price index (CPI) increased 0.4 percent m-o-m in November after gaining 0.1 percent m-o-m in October. Over the last 12 months, the CPI rose 2.2 percent y-o-y last month after advancing 2.0 percent y-o-y in the prior month. Economists had forecast the CPI to gain 0.4 percent m-o-m last month and 2.2 percent y-o-y in the 12-month period. According to the report, the energy index rose 3.9 percent m-o-m in November and accounted for about three-fourths of the all items increase. Meanwhile, the food index remained unchanged. Core CPI excluding volatile food and fuel costs increased 0.1 percent m-o-m in November after growing 0.2 percent m-o-m in October. In the 12 months through November, the core CPI rose 1.7 percent, after gaining 1.8 percent in the year through October. Economists had forecast the core CPI to rise 0.2 percent m-o-m and 1.8 percent y-o-y last month.

  • The U.S. Energy Information Administration (EIA) reported Wednesday that crude inventories fell by 5.117 million barrels to 442.986 million barrels in the week ended December 8. Economists had forecast a decrease of 3.759 million barrels. At the same time, gasoline stocks increased by 5.7 million barrels to 226.5 million barrels, analysts had expected a gain of 2.3 million. Distillate stocks decreased by 1.4 million barrels to 128.1 million barrels last week, while analysts had forecast a build of 1.2 million barrels. Meanwhile, oil production in the U.S. climbed to 9.780 million barrels per day from 9.707 million barrels per day in the previous week. U.S. crude oil imports averaged about 7.4 million barrels per day last week, up by 161,000 barrels per day from the previous week.

  • The Australian Bureau of Statistics (ABS) reported Thursday that the country’s seasonally adjusted unemployment rate remained steady at 5.4 percent in November. That was in line with and the lowest jobless rate since February 2013. According to the report, seasonally adjusted labour force participation rate rose to 65.5 percent in November from 65.2 percent in October, while the number of unemployed persons increased 4,100 to 707,700. In the meantime, employment rose by 61,600 to 12,403,000 in November versus economists’ expectations of a rise of 19,200 following the addition of 7,800 jobs in the prior month (revised up from 3,700).

  • The data released by China's National Bureau of Statistics (NBS) Tuesday revealed that the country’s industrial production increased 6.1 percent y-o-y in November, compared with a 6.2 percent y-o-y surge in the prior month. That missed economists’ forecasts for an increase of 6.2 percent y-o-y and marked the weakest rise in industrial output since August. The NBS also announced that the growth pace of the country’s fixed asset investment was 7.2 percent y-o-y in January to November period, easing from a 7.3 percent rise in January to October. That was in-line with economists’ expectation and represented the weakest increase in fixed asset investment since December 1999. Another report from the NBS showed that China’s retail sales surged 10.2 percent y-o-y in November, accelerating from October's 10.0 percent y-o-y increase. Economists had forecast a 10.3 percent y-o-y advance.


III. Market Situation
Currency Market
The currency pair EUR/USD rose slightly at the beginning of the session, hitting a high of December 6, but then retreated to the opening level due to partial profit-taking by investors after a surge in the pair the day before, which was triggered by the outcomes of the latest meeting of the Federal Open Market Committee (FOMC). As widely expected, the FOMC raised the fed funds target range by 25 basis points to 1.25 percent to 1.50 percent. In its statement, the FOMC said that the decision was hinged on “realized and expected labor market conditions and inflation.” Committee noted it continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. At the same time, the inflation on a 12‑month basis was projected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent target over the medium term. The projection materials, released along with the policy decision statement, showed the Fed officials raised their median estimate for annual gross domestic product (GDP) growth in 2018 to 2.5 percent from 2.1 percent. At the same time, the committee’s median forecast for long-run expansion was unchanged at 1.8 percent. The forecasts also showed little change in the inflation outlook over the next three years. The "dot plot," part of the FOMC's economic projections, revealed that the FOMC member anticipated three rate hikes in 2018 and two in 2019. Both figures were unchanged from the projections released in September. Today, the focus will be on news about the promotion of tax reform legislation in the U.S. as well as the outcomes of the ECB December meeting. The European regulator is not expected to change the parameters of its monetary policy at the meeting. At the same time, the accompanying statements of the bank, as well as the press conferences of its president, may shed light on its further plans. Resistance level - $1.1876 (high of December 5). Support level - $1.1711 (low of November 21).

The currency pair GBP/USD increased moderately, continuing yesterday's dynamics, and refreshing the high of December 11. The pair was helped by the weakness in the U.S. dollar, as well as the adjustments of positions by investors ahead of the announcement of the outcomes of the Bank of England’s (BoE) meeting. According to forecasts, the BoE will decide to keep its rate at 0.5 percent, while its quantitative easing (QE) program will be left unchanged at a total of 435 billion pounds. In addition to the BoE meeting, investors will also pay attention to the UK retail sales data for November. According to economists’ forecast, retail sales grew by 0.4 percent m-o-m and by 0.3 percent y-o-y. Resistance level - $1.3520 (high of December 8). Support level - $1.3304 (low of December 12).

The currency pair AUD/USD surged, approaching the high of October 10, supported by upbeat data on the Australian labor market. The Australian Bureau of Statistics (ABS) reported that the country’s seasonally adjusted unemployment rate remained steady at 5.4 percent in November. That was in line with and the lowest jobless rate since February 2013. According to the report, seasonally adjusted labour force participation rate rose to 65.5 percent in November from 65.2 percent in October, while the number of unemployed persons increased 4,100 to 707,700. In the meantime, employment rose by 61,600 to 12,403,000 in November versus economists’ expectations of a rise of 19,200 following the addition of 7,800 jobs in the prior month (revised up from 3,700). Resistance level - AUD0.7699 (high of December 7). Support level - AUD0.7501 (low of December 8).

The currency pair USD/JPY traded slightly higher due to partial profit-taking after its collapse the day before in response to the outcomes of the Fed’s latest meeting. Some support was provided by the Japanese data. The report released by the Ministry of Economy, Trade and Industry showed the industrial production in Japan rose by 0.5 percent m-o-m in October, in line with the preliminary estimate and after a 1.0 percent m-o-m decline in September. At the same time, inventories increased 3.2 percent m-o-m, just above the 3.1 percent m-o-m gain reported initially. Shipments fell 0.4 percent m-o-m, revised from a 0.5 percent m-o-m drop shown in the flash report. In y-o-y terms, Japan’s industrial output rose 5.9 percent in October, after a 2.6 percent rise in September. Resistance level - Y113.90 (high of November 14). Support level - Y111.98 (low of December 6).

Stock Market

Index

Value

Change

S&P

2,662.85

-0.05%

Dow

24,585.43

+0.33%

NASDAQ

6,875.80

+0.20%

Nikkei

22,694.45

-0.28%

Hang Seng

29,166.38

-0.19%

Shanghai

3,293.58

-0.29%

S&P/ASX

6,011.30

-0.17%


U.S. stock indexes closed mostly higher on Wednesday, with the Dow ending at a record for the fourth session in a row after the Federal Reserve raised interest rates, as had been widely expected. While the day's gains were broad, a sharp decline in financial shares limited the broader market's advance and pushed the S&P 500 into slightly negative territory in the final minutes of trading. Investors also assessed the November report on consumer price index (CPI). The Labor Department reported the U.S. CPI increased 0.4 percent m-o-m in November after gaining 0.1 percent m-o-m in October. Over the last 12 months, the CPI rose 2.2 percent y-o-y last month after advancing 2.0 percent y-o-y in the prior month. Economists had forecast the CPI to gain 0.4 percent m-o-m last month and 2.2 percent y-o-y in the 12-month period. According to the report, the energy index rose 3.9 percent m-o-m in November and accounted for about three-fourths of the all items increase. Meanwhile, the food index remained unchanged. Core CPI excluding volatile food and fuel costs increased 0.1 percent m-o-m in November after growing 0.2 percent m-o-m in October. In the 12 months through November, the core CPI rose 1.7 percent, after gaining 1.8 percent in the year through October. Economists had forecast the core CPI to rise 0.2 percent m-o-m and 1.8 percent y-o-y last month.

Asian stock indexes closed lower on Thursday, after the Federal Reserve delivered a much-anticipated interest rate hike but flagged caution about inflation, tempering expectations for future tightening. The Japanese equity benchmark, the Nikkei, fell moderately, as a recent strengthening of the yen put pressure on the Japanese large export-oriented companies.

European stock indexes are expected to trade lower in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.37% (+2 basis points)
Yields of German 10-year bonds hold at 0.31% (-1 basis points)
Yields of UK 10-year gilts hold at 1.22% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in January settled at $56.77 (+0.30%). The crude oil prices rose slightly, correcting after yesterday's decline. The focus also remained on the latest report from the U.S. Energy Information Administration (EIA), which showed that crude inventories fell by 5.117 million barrels to 442.986 million barrels in the week ended December 8. Economists had forecast a decrease of 3.759 million barrels. At the same time, gasoline stocks increased by 5.7 million barrels to 226.5 million barrels, analysts had expected a gain of 2.3 million. Distillate stocks decreased by 1.4 million barrels to 128.1 million barrels last week, while analysts had forecast a build of 1.2 million barrels. Meanwhile, oil production in the U.S. climbed to 9.780 million barrels per day from 9.707 million barrels per day in the previous week. U.S. crude oil imports averaged about 7.4 million barrels per day last week, up by 161,000 barrels per day from the previous week.


Gold traded at $1257.00 (+0.14%). Gold prices rose slightly, continuing yesterday's dynamics. Gold prices were supported by the outcomes of the Fed meeting, which fully coincided with the expectations: the fed funds target range was raised by 25 basis points to 1.25 percent to 1.50 percent, the estimate for economic growth was improved, while inflation forecast was left unchanged. In addition, the bank maintained its outlook of three rate increases in 2018 on low inflation concerns.


IV. The most important news that are expected (time GMT0)


07:45

France

CPI

08:00

France

Services PMI

08:00

France

Manufacturing PMI

08:15

Switzerland

Producer & Import Prices

08:30

Germany

Services PMI

08:30

Germany

Manufacturing PMI

08:30

Switzerland

SNB Interest Rate Decision

09:00

Eurozone

Manufacturing PMI

09:00

Eurozone

Services PMI

09:00

Switzerland

SNB Press Conference

09:30

United Kingdom

Retail Sales

12:00

United Kingdom

Bank of England Minutes

12:00

United Kingdom

Asset Purchase Facility

12:00

United Kingdom

BoE Interest Rate Decision

12:45

Eurozone

Deposit Facilty Rate

12:45

Eurozone

ECB Interest Rate Decision

13:30

Eurozone

ECB Press Conference

13:30

Canada

New Housing Price Index

13:30

U.S.

Continuing Jobless Claims

13:30

U.S.

Retail Sales

13:30

U.S.

Retail sales excluding auto

13:30

U.S.

Import Price Index

13:30

U.S.

Initial Jobless Claims

14:45

U.S.

Manufacturing PMI

14:45

U.S.

Services PMI

15:00

U.S.

Business inventories

19:25

Canada

BOC Gov Stephen Poloz Speaks

21:30

New Zealand

Business NZ PMI

23:50

Japan

BoJ Tankan. Manufacturing Index

23:50

Japan

BoJ Tankan. Non-Manufacturing Index


Market Focus

  • Euro Area trade balance surplus declined significantly in August
  • Consumer prices in China were up 1.6 percent on year in September,
  • US consumer sentiment surged in early October, reaching its highest level since the start of 2004 says UoM
  • Earnings Season in U.S.: Major Reports of the Week
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All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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