Holiday Trading with Eyes on Consumer Data, Central Banks
11/27/2017 10:53 am EST
Holiday trading continues based on consumption data and extends to how central bankers interpret the rewards into their forward guidance. Consumption has also become a part of measuring political risks and moods, writes Bob Savage, CEO of Track Research over the weekend.
If we learned anything this year, it’s that global demand has mattered and driven a coordinated lift in economic growth that is the best in over a decade.
The end of “crisis” thinking by central bankers and governments post the 2008-2009 great recession is the new reality. How we transition to “normal” has obsessed investors and kept the dance of risk to rates more a waltz than a tango to new equity market highs.
Years of easy money appears to have finally brought forward demand but it also brought ugly politics and a fractured world with more forces of de-globalization and nationalism.
The start of the holiday trading began last week and it will continue based on consumption data and extend to how central bankers interpret the rewards into their forward guidance. Consumption has also become a part of measuring political risks and moods. This week is all about the German SPD talks with Merkel and how a potential coalition can form to govern – that sparked a significant rally back in the euro (EUR/USD) Friday and leaves many rethinking whether rates matter as much as growth. The German Jamaica Coalition failure earlier was quickly forgotten and replaced with SPD hopes.
Last week saw a notable improvement in the UK politics and Brexit hopes, despite a tight budget and lower economic forecasts, which adds to the focus on UK confidence and consumer mood.
China was also important last week as the sharp rise in rates there spooked the equity markets even as the Chinese yuan (CNY/USD) gained. Black Friday will be compared to Singles Day and the early reports suggest that China demand far outstrips U.S. consumer demand. However, the $5bn spent in 24 hours was up 16.9% online while the foot traffic was down 2%. The push to online retail stands out in both nations.
The level of wages may be just part of the puzzle as the balancing act of wealth, security and availability of goods mix with the cycle of progress in moving a nation from development of a middle class to maturing into something else. The price action last week was as exciting as the politics and the data with the big picture themes of chasing risk in a low yield, low volatility world all holding in place.
Bitcoin/U.S. dollar (BTC) sets a new record high over $9000 last week up 12% – as we live increasingly online and virtual– all this despite another cryptocurrency hack of a wallet this week at Tether. U.S. equities touched new highs in the U.S., led by small caps, lagged by financials, returned bid despite German politics and the stronger EUR in Europe, while Asia was more mixed with Japan up, China down with rates more than forex the focus.
Oil prices touched 2-year highs with the TransCanada Keystone pipeline shut due to the leak in South Dakota and thanks to constant talk about OPEC this week extending production cut plans beyond 1Q2018.
Bonds were mixed with curves flatter globally – in part because of the limited supply, in part because of fewer inflation fears and in part because of the policy doubts inspired by the China equity drop linked back to deleveraging.
Whether central bankers still have a “free” put on equities continues to be important to watching prices – as many see the financial stability mandates as more important than bubble fears globally.