European Outlook: Asian stock markets moved mostly higher overnight, although while Chinese markets picked up stocks are still heading for a solid weekly drop. ASX and Nifty are down on the day, as the Dollar gave up some of its recent gains. U.S. and U.K. stock futures meanwhile are moving higher. European yields have popped sharply higher since the Fed decision and yesterday’s BoE move, which confirmed the bank’s neutral stance, failed to stop the long Gilt yield to add a further 10 bp. Eurozone spreads are coming in meanwhile and peripheral markets continue to outperform as the ECB continues its bond buying spree. Today’s European calendar has French business confidence, as well as Eurozone trade and final December CPI numbers and the U.K. CBI industrial trends survey. Gold touched $1122 before recovering to $1133, WTI traded under $50 and currently trades at $51. USDJPY is north of 118.00, EURUSD is struggling to hold 1.0450 and Cable bounced from 1.2400 to 1.2430.
BoE, SNB and Norges Bank Stay Put Amid Political Challenges In 2017: No surprises from European central banks yesterday, with BoE, SNB and finally Norges Bank all keeping rates on hold and indicating a pretty stable policy path ahead. However, while all acknowledge ongoing improvement in the global economy, they also stress heightened uncertainty, with future policies in the U.S., and Brexit negotiations adding to remaining concerns about the stability of the Chinese economy.
The U.S. Data Yesterday: Revealed big gains in the capital expenditure plans components that bode well for a possible ongoing climb in sentiment and investment activity into early-2017. The Philly Fed capital expenditure plans measure surged to a cycle-high 33.8 from 19.1 in November and a 5-month high of 21.2 in October, versus a 31.2 prior cycle-high in March of 2011 and a -18.2 cycle-low in December of 2008. The Empire State’s capital expenditure plans index surged to 21.7 from 12.7 in November and 13.2 in October, versus a one-year high of 22.1 in April, a 38.2 cycle-high in May of 2010, and a -19.1 cycle-low in March of 2009. We’ve also seen big gains in small business confidence, an NAHB December surge to an 11-year high of 70, and lean inventories into Q4 that all leave room for a production bounce into the new year.
BoC Poloz highlighted Canada’s differences with the U.S., in response to a question asking if a BoC hike was imminent. Not surprisingly, he did not answer directly, saying that (rate hike imminent) was the report’s (“your”) conclusion. He reminded that the BoC’s forecast is for CPI to get back to target by mid 2018. Unlike the U.S., “we have considerable amount of excess capacity” he said. “If we don’t get rid of it, inflation will stay below for long time. For that reason, our rates our low to fill in that gap. All I can say for now is that our projection is it will take until 2018 to return to full capacity. That is different than the U.S.,” Poloz explained.
Main Macro Events Today
EUR CPI – Final headline figure is expected at 0.6% and Core at 0.8% – Both unchanged and still struggling to show any meaningful increase. Mr Draghi’s headache continues. The seasonally adjusted Trade balance is also due at the same time and is expected to have ticked up to 25.2billion Euro from 24.9 bln. (Exports worth more than Imports with such a weak Euro this is a minimum for future Euro zone growth).
US Housing Starts – November housing starts data is out today and should post a 1,240k headline, down from the October surge to 1,323k that set a high back to 2007. Permits are expected at 1,230k from 1,260k in October and completions should be 1,065k from 1,055k in October. The NAHB was steady at 63 in November before Thursday’s October surge to 70.