Amplify Weekly Strategy: 17th - 21st December 2018

Amplify Weekly Strategy: 17th - 21st December 2018


CALENDAR HIGHLIGHTS


Monday: UK Rightmove House Prices, IT Trade Balance, EU Final CPI, Trade Balance, GE Bundesbank Monthly Report, US Empire Manufacturing Index, NAHB Housing Market Index, TIC Long-Term Purchases


Tuesday: AU RBA Monetary Policy Minutes, GE Ifo Business Climate, US Building Permits, Housing Starts, CA Manufacturing Sales, NZ GDT Price Index

Wednesday: JN Trade Balance, GE PPI, UK CPI/RPI/PPI, CBI Realised Sales, US Current Account, Existing Homes Sales, DoE Crude Oil Inventories, FOMC Rate Decision, Summary of Economic Projections, Press Conference, CA CPI, NZ GDP, Trade Balance


Thursday: AU Employment Change, Unemployment Rate, JN BoJ Rate Decision, Press Conference, EU Current Account, UK Retail Sales, BoE Rate Decision, Minutes, UK Parliamentary recess begins (return 7th Jan 2019), US Philly Fed Manufacturing Index, Weekly Jobless Claims, CA ADP Non-Farm Employment Change, Wholesale Sales, RU President Putin holds annual end of year press conference


Friday: JN National Core CPI, GE GfK Consumer Climate, FR Consumer Spending, UK Final GDP, PSNB, Current Account, Revised Business Investment, BoE Quarterly Bulletin, EU Consumer Confidence, US Final GDP, Core Durable Goods Orders, Core PCE Price Index, Personal Spending/Income, Revised University of Michigan Sentiment, CA GDP, Retail Sales, BoC Business Outlook Survey


If you missed the market briefing this morning you can replay the session HERE. Myself and the head of trading, Piers Curran, also recorded a live conversation on our thoughts for 2019 which you can access HERE.


The last big event for the year...


Wednesday night is date night with Jay Powell, as we eagerly await the latest Summary of Economic Projections (SEP) and the all important composition of the dot-plot matrix. FFR futures are currently pricing in a 25bps rate hike this week at 77%, but as has been the case with every hike delivered this year, it's about the subsequent hikes thereafter that will move markets and none more so than this meeting given the recent shift to a dovish stance in recent weeks. 


Below is a snapshot of the last SEP released back in September, the key here being the trajectory of the green line and at what level interest rates are set to peak. Currently Fed projections are indicative of three hikes in 2019 but markets are pricing in <2. 



The outcome of this meeting, and ultimately how dovish or not the Fed is with their outlook will be particularly telling for the near-term direction of the S&P 500, which importantly closed below the key trend channel for this year on Friday. 


If 'Santa Clause' is going to come and save the day once again then it's not just the Fed that needs to play its part, but President Trump has two key topics what could promote Christmas cheer in the short-term. One being an easing on the Chinese trade rhetoric and secondly a smooth passage to averting a potential government shutdown this weekend.



Growing calls for a second Brexit referendum...


The next step forward for Brexit negotiations remains more uncertain than ever and this weekend saw a distinct pick up in speculation on a second referendum. Much of this talk was instigated by an article in the Sunday Times suggesting two of Theresa May's most senior allies are preparing for a second vote behind the PM's back. 


No. 10 were quick to put out the flames and ahead of her Parliament address later today excerpts from May's speech have already been circulated stating another referendum "would do irreparable damage to the integrity of our policies, because it would say to millions who trusted in democracy, that our democracy does not deliver". Although this party line has been repeated by other notable Conservative figures one would believe there is no smoke without fire and although not yet a base-case scenario the odds of another referendum to break the current impasse are quickly rising. 


That being said a second vote is not as straight forward as you may initially think as the question on the ballot paper could be critical as to shaping the outcome, more of this in the briefing earlier today HERE.



Away from politics, this week we also get a health check on the British economy with CPI (Weds), retail sales (Thurs) and GDP (Fri) all due for release. In addition to this, the Bank of England's MPC also hold their final meeting of the year with all but one of the 60 economists surveyed by Bloomberg expecting interest rates to remain at 0.75%. Our belief is that despite a pick-up in wages the overwhelming cloud of uncertainty over Brexit leaves the Bank with no other choice and we anticipate a unanimous 9-0 vote. 


 

Italy look to fall inline with EU requests...


Reports this morning suggest that Italian PM Conte has managed to get the League and Five Star leaders Salivi and Di Miao to agree with a reduced budget deficit target of 2.04%. This would technically mean proposals can be tweaked and presented to the Italian Senate by mid-week so that Conte can obtain final approval by parliament by the end of the year, according to Bloomberg.


Interestingly, the positive developments in Italy have come in stark contrast to their European partner France where Macron remains under growing pressure over his recent budget proposal in order to quell the recent uprising against his government's policies. 



Much of the fate for EUR/USD rests in the hands of the greenback so Wednesday nights FOMC announcement will be key as to timing for any more meaningful move this week.



Make or break time for crude oil...


Looking at the WTI chart this morning it is clear to see that decision time is looming. Fundamentally we still think that OPEC+ decision to cut production by 1.2mbpd will do little to help prices recover and as long as global growth concerns remain fragile there is still risks to the downside. That being said, outside of the technical levels in play this morning it would not be a surprise to see WTI crude consolidate between $50-$55/bbl as discussed with our head of trading on Friday HERE.



Have a great week ahead and a very Merry Christmas if I don't speak to you before then.


Regards,

Anthony


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