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‘Tremendous Benefits’: Full Week Ahead Preview

Ok, who's ready to grab the new week by the...

Ok, who’s ready to grab the new week by the pussy?!

I know this guy sure as hell is:

Anyone want to explain why the words “record”, “setting”, “stock” and “prices” are all capitalized there? Anyone? Bueller…. Bueller….


Needless to say, risk in all its various manifestations is riding high headed into the second week of 2018. Last week, we i) enjoyed a “bigly” extension of the global equity rally, ii) saw the best opening week to a year for crude since 2013, iii) saw the best week for high yield ETFs since August, iv) watched as the MSCI EM FX index extended its longest streak of consecutive daily gains in seven years, and v) witnessed the culmination of the best run on record for the Bloomberg Commodity index. All in all, pretty much everything worked.

Chuck Norris GIF

Well, everything except the dollar.


This week we’ll get a deluge of China econ including TSF, CPI/PPI, and trade data. On Sunday, the PBoC said end-December FX reserves were $3.14 trillion against estimates of $3.1268 trillion. So that’s the 11th consecutive monthly increase and it comes as the yuan is sitting at a four-month high versus the dollar.


“It’ll be tough break the virtuous circle of a softer USD facilitating growing  China  reserves which then supports the yuan, and that in turn helps weigh on BBDXY,” Bloomberg’s Mark Cranfield wrote on Sunday. This comes thanks in no small part to tighter capital controls. Here’s Goldman:

CNY appreciated significantly in Dec against both the USD (+1.5%) and CFETS basket (+0.5%) [and] unlike most other episodes of sudden CNY appreciation in the last several months, the Dec move was not forewarned by a preceding strengthening in the fixing’s countercyclical factor. This suggests that the appreciation this time was probably not intended to act against the prevailing market pressure. Rather, the CNY strength could be a reflection of i) increased market demand for the currency; and/or ii) the authorities’ pre-emptive CNY expectation management, in light of higher US interest rates (and tax reform).

And here’s a chart to ponder when you think about the commodities rally mentioned above and China monetary aggregates:


In the U.S., the focus will be on CPI. Although the headline payrolls number disappointed on Friday, AHE was in line and with the dollar in the doldrums, everyone will be watching CPI closely and adjusting their expectations for a March hike accordingly.

“We look for slightly below-consensus readings for key data releases on Friday. Headline CPI for December is expected to be slightly weaker (0.1% m/m versus 0.2%) but in line with consensus on core (0.2% m/m),” Barclays writes. The bank is also below consensus on December retail sales ex-autos (0.2% m/m versus 0.4% consensus). “The softer patch for US data is consistent with the weaker payroll number last week and contrasts with the stronger and above-consensus readings over October and November,” they add.

“We estimate a 0.22% increase in December core CPI (mom sa), which would leave the year-over-year rate unchanged at +1.7%,” Goldman says, weighing in with their week ahead outlook. “Our forecast reflects additional post-hurricane strength in used car prices, a rebound in lodging away from home, and a possible rebound in airfares.” Goldman is at 0.4% on core retail sales (so, in line with consensus) “reflecting indications of a solid end to the holiday shopping season.”

In Europe, watch for ECB minutes and, more importantly, coalition talks in Germany. Here’s Barclays:

Preliminary Grand Coalition talks in Germany begin Sunday and will explore fifteen key themes, including economic, migration, and foreign/EU policy. The SPD will hold a conference on 21 January to vote on the outcome of these preliminary negations. A vote in favour would mean the beginning of formal Grand Coalition talks. While no formal date has been confirmed yet, our economists place the timing between the middle and the end of February. While the procedural steps to achieve a Grand Coalition are clear and this remains our central scenario, significant risks remain with the approval ratings of the CDU/CSU and FDP having declined since the coalition talks broke down.

According to FT, Angela Merkel is “confident that talks that began on Sunday on forming a new grand coalition government for Europe’s most powerful state would succeed.” We’ll see.

Meanwhile, note that spec positioning in the euro (which is coming off its best year against the dollar since 2003) is stretched to extremes:

Also notable, North and South Korea will sit down for high level talks – a remarkable step for obvious reasons. On Sunday, North Korea called for better inter-Korean relations and said both parties should “actively create the mood for reconciliation and unification.” Again, that’s a notable shift in the rhetoric.

Oh, and if you were looking forward to Trump’s “Fake News Awards”, you’ll have to wait another week because in case you missed the programming update, the ceremony has been pushed back:


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