Central Bank Meetings And Flash PMI Reports, But It's Over Except For The Shouting

After last week's flurry of events, market activity is set to slow over the next three weeks. But what a flurry of events it was. A new NAFTA apparently has been agreed, and it is set to be approved by the US House of Representatives next week and the Senate early next year. The US and China struck an agreement that will get rid of the immediate tariff threat and unwind half of the punitive tariffs in exchange for a commitment to buy twice the amount of agriculture goods next year than it at its peak a couple years ago. China also promises to be more protective of property rights and has already taken some formal steps in that direction.The precise details appear less important to investors than the broad idea that there is a de-escalation of the trade conflict between the two largest economies. Boris Johnson led the UK Tories to a smashing victory, and their majority is the largest since Thatcher's 30 years ago. The Federal Reserve recognized that the short-term funding market was still at risk and increased the funds it will make available to cover to the turn (of the year) to nearly $500 billion. A more investor-friendly set of outcomes is difficult to imagine.

This week's highlights include the flash PMIs and several central bank meetings. On balance, however, not much will be added to our information set. Sweden's Riksbank may be an exception. The Bank of Japan, the Bank of England, Norway's Norges Bank and the Riksbank hold policy meetings on December 19. Sweden's central bank is the only one that is likely to do something, and that something is probably a 25 bp rate hike that would bring the repo rate by to zero. It has been negative since early 2015. Ever since the hike in January, it has seemed the central bank was looking for an opportunity to hike again.

Value is seemingly being destroyed by Swedish industry. Value-added has fallen by 3% in October year-over-year. This year's average is about 1.2%, a third of 2018's 3.6% average. Other indicators, like the PMI, warn of downside risks, as well. Nevertheless, the Riksbank appears willing to seize on the slight uptick in the key inflation measure (CPI-adjusted for fixed income mortgages) to 1.7% in November from 1.5%.

The euro had trended higher to reach a decade-old high against the Swedish krona in the first half of October near SEK10.9350. Since then, it has slumped in eight of the last nine weeks, in which time, it has met the (61.8%) retracement objective of this year's rally. The technical indicators are stretched, suggesting the krona's strength begin moderating.

Norway's monetary tightening cycle began August last year with a 25 bp hike in the deposit rate to 75 bp. Since March, Norges Bank has followed a pattern. Hike by 25 at one meeting and pause, raising rates at every other meeting. There have been three through September, and the pause came in October. For the pattern to remain intact, it would need to hike rates this week, but expectations for such a move are practically nonexistent. Nevertheless, the tightening cycle does not appear over, and the market seems to be discounting a hike in Q1 20.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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