Holiday Mode Keeps Participation Light

Friday December 23: Five things the markets are talking about

Thin trade ahead of the Christmas holiday and shortened trading sessions in several markets sees trading volumes -40% lower than the 30-day average.

Stocks, currencies and sovereign bonds continue to move in narrow ranges as investors and dealers remain reluctant to open any new positions ahead of the New Year.

Taking their cue from yesterday’s U.S sessions, Asian markets had little to get excited about with the Dow failing to breach the psychological 20k handle, while Euro asset classes look to Italy for news flow around Italian lenders.

On tap: U.S. New Home Sales and the UoM consumer sentiment at 10am EST. Canada’s loonie will have to contend with GDP at 08:30am EST.

1. Euro financials lead the way

Euro equity indices are trading mostly higher, predominantly led by financial stocks after some of the major banks reached settlements with the U.S DoJ and after the Italian Government issued a decree overnight to bail out Monte dei Paschi di Siena – the world’s oldest bank – after it failed to win private funding. This opens the way for possibly the biggest Italian bank nationalization in over 50-years. The Government approved +€20B to strengthen banks capital and liquidity. Banks that want to request state aid must present capital strengthening plan to the ECB and get approval

Deutsche Bank leads the gains in the Eurostoxx 600, while Barclays trades notably lower in the FTSE 100.

U.S futures are set to open unchanged in this holiday shortened session.

Indices: Stoxx50 +0.4% at 3,278, FTSE -0.1% at 7,059, DAX +0.1% at 11,469, CAC-40 +0.1% at 4,841, IBEX-35 +0.4% at 9,370, FTSE MIB +1.0% at 19,305, SMI -0.1% at 8,231, S&P 500 Futures flat

2. Crude prices down on profit taking, gold higher

Crude prices have pulled back as dealer’s cash in profits ahead of the holiday break.

Brent crude futures dropped -19c or -0.4% to +$54.86 a barrel after ending +1.1% yesterday, while light crude (WTI) fell -28c or -0.5% to +$52.67 a barrel after gaining +0.9% on Thursday.

Overall sentiment remains positive with global oil supply expected to shrink after OPEC agreed to cut global output by almost -2% in November.

Nevertheless, in the absence of fundamentals until next month, investors can expect the technical support and resistance levels to become more of the price drivers.

Gold for immediate delivery has edged higher ahead of the U.S open, adding +0.3% to +$1,131.74 an ounce, however, it’s still set for its seventh-week of declines.

3. Little movement in sovereign yields

With the Italian government lending much needed support to its own banks has sovereign yields tightening up. Italian 10-year yields declined -4bps to +1.81% on the +€20B capital parachute.

Elsewhere, German bunds fell -1bps to +0.25%, while U.S 10’s are little changed with yields backing up +2bps to +2.55% ahead of the open.

4. Dollar looks to the turn

The FX market is again quiet, trading in a narrow range heading into the holiday break. The dollar continues to consolidate within striking distance of its 14-year highs across the board.

Europe’s single unit has edged up +0.2% outright (€1.0460), while the U.K’s pound has pared some of its earlier losses, edging up just slightly from its seven-week low (£1.2275) after data showed the U.K. economy growing in Q3 (see below). USD/JPY is slightly lower, trading atop of ¥117.35 area.

5. Revisions have U.K economy growing after Brexit vote

The U.K. economy grew faster than previously thought following June’s Brexit vote.

Data this morning from the U.K’s ONS said the economy grew +0.6% in both Q2 and Q3 – beating earlier estimates that suggested the economy grew at a slower +0.5% in Q3 and a faster +0.7% in Q2. On an annualized basis, Q3 growth was revised up to +2.3% from +2.0%.

It’s no surprise to see that the consumer, which offset a poor export performance, again powered the U.K economy.

However, markets can expect to see a squeeze on consumer spending next year from accelerating inflation to hinder U.K growth.

A concern in the report was again business investment, it rose +0.4% in Q3, a smaller rise than initially estimated – capital spending is maintained by government investment and construction.

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