Scrooge Rules


It was a difficult week for investors. Our anticipation of a Santa Claus rally at the end of November proved wide of the mark.  Instead, the MSCI World Index of developed markets is off around 9% this month with a three-week decline in tow.  Emerging markets have fared a bit better.  The MSCI Emerging Markets Index has also fallen for three consecutive weeks but is off about 3.5% on this leg.  Yields fell earlier in the month, but this past week was more mixed.  The benchmark 10-year yields rose in both the UK and Japan.  They were off a single basis point in Germany, while the deal with the EU helped Italian bonds rally with the yield falling nearly 20 bp.  The US 10-year yield eased 5 bp to slip below 2.80%, while the two-year yield eased nearly three basis points to 2.66%, despite the 25 bp hike in the Fed funds target range (to 2.25%-2.50%) and anticipation of two more increases in 2019 and one in 2020.   Supply and demand concerns saw WTI for February delivery dropped 10.5% to almost $45 a barrel,.  Gold rose a little more than 1.5% to $1264, a five-month high.  The dollar was mixed last week but ended on a firm note.  It gained against the dollar-bloc currencies and the Norwegian krone but lost ground against the other European currencies and yen.  

Dollar Index:  The Dollar Index lost about 0.5% last week, giving back about half its gains from the previous week.  It has been in a clear 96.00-97.50 trading range since the end of October.  There have been some intraday breaks higher, yet the Dollar Index closed above 97.50 only once this year (November 12).  The five-day moving average has slipped below the 20-day moving average, but the range trading has whipsawed these averages in recent weeks.  We anticipate further range trading.

Euro:  The euro was turned back after pushing toward the upper end of its two-week trading range.  It rose to about $1.1485, its best level since November 7 (and the 100-day moving average), a day after the Federal Reserve hiked its target range by 25 bp amid much controversy and claims that it risks a recession.  However, the pullback back ahead of the weekend saw the euro takeout support in the $1.1380-$1.1400 area, which helps neutralize the technical tone. With the US two-year premium over Germany still moving lower and is now at a three-month low (~325 bp), the downside is likely to be limited to the $1.13 area.      

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Read more by Marc on his site Marc to Market.

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