Markets Inching Towards ‘Silly Season’

WHERE WE STAND – December is an odd time of year for financial markets. 

The year is, effectively, done & dusted. Certainly, nobody is going to be making their year as Christmas approaches, but plenty would find it very easy to break it. Consequently, liquidity tends to dry up and volumes thin out, as markets become a mix of position squaring as books are closed up, and portfolio window dressing as the dreaded task of writing year-end investment letters looms. 

Participants, broadly, know all this, meaning that the few weeks between Thanksgiving and Christmas, the period in which we now reside, resulting in most showing faux interest in proceedings, while dashing between watering holes enjoying the deluge of festive social events undoubtedly taking place. 

December also tends to be a time when, more often than usual, folk are desperate to find an easy narrative to suit whatever price action may be panning out in front of us.

Yesterday was a decent example of that. Was the dollar firmer because of some rambling nonsense incoming President Trump had posted about the threat of 100% tariffs on BRICs nations if they created a new currency of their own? Perhaps, but it’s an argument I struggle to buy into – anyone with an ounce of sense knows that the dollar is far from dead, and that moving away from the buck for trade would be nigh-on impossible.

Instead, it’s more likely that yesterday’s dollar gains were simply a continuation of the broader bullish USD trend that markets have been running with for some time, as the ‘US exceptionalism’ theme continues to dominate. This was probably helped by the buck’s typically strong performance to kick off a new trading month, with the greenback having ended the first working day of the month in the green on two-thirds of occasions over the last 18 months.

Anyway, here in the UK, there might be some good news on the horizon, with chatter doing the rounds that the ONS might move back to releasing key UK economic data at 9:30am, as it used to be pre-covid. To be honest, releasing figures at 7am, half an hour before the LIFFE open, and when Gilts are closed, was always an idiotic decision, so let’s hope the ONS see sense here. Still, given how ropey the figures are, especially labour market data, maybe the time of the release doesn’t matter all that much.

Meanwhile, across the Channel, French political woes persist, with the government set to lose a no confidence vote later in the week, after PM Barnier forced through the Budget using executive powers. The EUR, predictably, had a wobble on the news, though losses were relatively contained to just below the 1.05 handle. I’d not be an EUR buyer, here, though am still of the view that ‘peak pessimism’ might well be close.

Away from FX, December got under way with a continuation of the risk-on vibe seen last month, with both the S&P and Nasdaq ending the day in the green, as the latter vastly outperformed. Clearly, the path of least resistance continues to lead to the upside, with year-end portfolio window dressing, coupled with the strong macro backdrop, solid earnings growth, and forceful ‘Fed put’, all set to combine and ensure a positive end to the year for risk.

LOOK AHEAD – A quiet-ish day ahead on the data docket today, with just the October JOLTS job openings figures of note.

While there will be little read across from the figures, expected at 7.52mln from a prior 7.44mln, to Friday’s nonfarm payrolls print, the JOLTS data is also less likely to have been skewed by the impacts of October’s adverse weather, given that the survey reflects labour conditions as they were on the last day of the month, as opposed to the NFP print pertaining to the week containing the 12^th.

Elsewhere, the latest Swiss inflation figures should keep the SNB on course for another cut in December, though a cooler than expected print – consensus sees CPI rising 0.7% YoY – could see bets on a 50bp cut ramp up. Such a move, though, would be rather punchy, with the SNB just 100bp above the ZLB at present.

Sticking with policy, lastly, remarks are due from the Fed’s Kugler and Goolsbee, along with ECB Governing Council members Panetta and Cipollone.