Daily Kickstart (Ball Drop Edition)

Barring some kind of truly historic meltdown, the S&P is set to close the year with a gain of ~8% while the Dow is up some 10%. The impressive returns mark an epic rebound from the February lows. The year started on a decidedly sour note as fears of deflation and intensifying outflows from China shook investor confidence in January.

Oil also had a banner year, posting its largest gain (~46%) since 2009 on the back of a subdued dollar (at least during the spring and summer) and the OPEC/non-OPEC agreement to cut supply.

(Bloomberg)

10Y yields sit at 2.46%, their lowest level since December 14, but are up around 80bps since February.

US HY credit had a fantastic run, outperforming its equity counterpart even as default rates rose to a post-crisis high.

As for currencies, here are the best and worst performers among the majors:

(Bloomberg)

Asian shares were mixed overnight with Hong Kong rallying and the ASX stumbling.

Screens are largely red in Europe and the EUR surged to a three week high against the dollar in thin trading. “It’s a really thin market today, and suddenly offers disappeared and short-term players pushed the euro higher and took out stops. That’s all,” Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo told CNBC. The greenback essentially flash crashed against the common currency on Thursday evening.

Dollar is plunging

— Walter White (@heisenbergrpt) December 29, 2016

The surge was at least partly driven by algo buying as the EURUSD cross hit 1.0500 in the early session, traders said.

“Analysts attribute much of this to thin holiday trading and year-end reporting conservatism by money-managing firms, but there are also signs that some of the optimism about global growth and inflation that followed Donald Trump’s victory has faded,” WSJ wrote a few minutes ago, adding that although “much of this recent year-end breather is because of lower trading volumes during the holiday season, it could also signal markets got slightly ahead of themselves after the U.S. election, in a world where growth is expected to be weak for years to come and interest rates are expected to remain low for the foreseeable future.”

Let’s hope no one “drops the ball” (a little New Year’s Eve double entendre) in the year ahead.

January should give us a good idea about whether the bond selloff will continue apace or reverse course in the face of headwinds from China and general concerns about the pace of global growth and the sustainability of the nascent reflation trade.

For anyone who missed it, here’s SocGen with a great summary of the grey swans swimming in our midst:

Excitement about Donald Trump’s presidency and a shift in the global monetary/fiscal policy balance; concern about China’s ability to keep the economy on track and control the pace of capital outflows; fear or further gains by populist politicians in this year’s elections, in France, Germany and Italy; A nagging sense that then bond market adjustment that is now underway has further twists and turns in store as borrowers and FX hedgers scramble for dollars. There are loads of emotions that can dominate the market moods in the days ahead, and lots to ponder.

Market wrap:

• S&P 500 futures up 0.2% to 2250
• Stoxx 600 down 0.3% to 359
• MSCI Asia Pacific up 0.1% to 135
• US 10-yr yield up less than 1bp to 2.48%
• Dollar Index down 0.62% to 102.04
• WTI Crude futures up 0.4% to $53.96
• Brent Futures up 0.3% to $57.03
• Gold spot up 0.2% to $1,160
• Silver spot up 0.5% to $16.24
• Stoxx 600 down 0.3% to 359
• FTSE 100 down 0.3% to 7098
• DAX down 0.2% to 11431
• German 10Yr yield up 2bps to 0.19%
• Italian 10Yr yield up less than 1bp to 1.8%
• Spanish 10Yr yield up 1bp to 1.34%
• S&P GSCI Index up 0.3% to 399.6
• MSCI Asia Pacific up 0.1% to 135
• Nikkei 225 down 0.2% to 19114
• Hang Seng up 1% to 22001
• Shanghai Composite up 0.2% to 3104
• S&P/ASX 200 down 0.6% to 5666