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This was the best chart from Jeff Gundlach’s presentation

  
  Analysis
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It’s impossible to hedge

It's impossible to hedge 
The big risk in the FX market is that there are massive flows of unhedged foreign bond buying in the US.
The problem is that Japanese and European investors can’t get positive yield. A traditional option is to buy foreign bonds and hedge in a classic carry trade. The problem he highlights here is that you can’t do that now because the hedge pushes the return into negative territory.
So instead the theory is that they’re buying Treasuries unhedged. That is a wildly risky trade because you’re getting 1.8% a year for 10 years but the currency could drop 18%. What could happen is that if/when the US dollars falls, it starts a rush to the exits and you get a very quick, very painful drop and overshoot.
That should be a key risk that everyone is watching, especially with a President who wants a weaker currency.

Stock indices end lower. All S&P sectors close lower on the day

  
Analysis, US Market
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Late day selling hurts major indices

Some late day selling has pushed the major indices into the red.  All the S&P sectors are closing lower on the day.
The final numbers are showing:
  • S&P index -9.13 points or -0.28% to 3237.15. The high reached 3244.91.The low extended to 3232.43
  • NASDAQ index fell -2.883 points or -0.03% to 9068.58. The high reached 9091.93. The low extended to 9042.55
  • Dow fell -119.97 points or -0.42% to 28583.43. The high reached 28685.50. The low extended to 28565.28.

10% corrections in S&P 500

  
Analysis, US Market
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It has been more than a year since the S&P 500 went down 10%. In the nearly 17 years since March 2003, there have been 19 declines of 10% or more. There have been 82 declines of 5% or more.

Drawdown  Qty    Trading days Days since last
5%      82            4234              64
10%      19            4234             298
20%       5            4234             259
25%       2            4234            2731
33%       1            4234            2831

It’s PMI day in Europe to kick start the new year

  
  Analysis
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But markets are still plagued by poor liquidity conditions for the most part

2020

Happy New Year, everyone! Hope that all of you had a great celebration or time off and that you’re refreshed for another new trading year ahead.
Markets are still largely affected by thin conditions with liquidity still rather lacking and I would expect things to stay that way until tomorrow or next week at least.
In the major currencies space, things are a little mixed with the pound finding itself on the back foot while the aussie and franc are also mildly weaker on the day so far.
Looking ahead, we’ll have manufacturing PMI releases in the European morning but these will be final readings for December, so they won’t really matter all too much.
0815 GMT – Spain December manufacturing PMI
0845 GMT – Italy December manufacturing PMI
0850 GMT – France December final manufacturing PMI
0855 GMT – Germany December final manufacturing PMI
0900 GMT – Eurozone December final manufacturing PMI

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Currencies 2019: “The Year of Low Volatility”

  
Analysis, Forex
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Record low ranges for many of the major currency pairs

If I were to name the currency year, it would be “The Year of Low Volatility”.
Three of the currency pairs had low to high trading ranges that were the lowest since 1980. Even the GBPUSD which had alll the Brexit goings on, had a relatively low range year (the 5th lowest since 2000).
If the low ranges are indicative of non-trending, the good news is non-trending transitions to trending. As a result, I would expect a more volatile/larger trading range for 2020 for many of the currency pairs. Keep that thought in mind in 2020.

Below are the graphical historical ranges for the major currency pairs versus the dollar along with comments about each. .

EURUSD.

The EURUSDh had the lowest trading range going back to 1980
The low to high trading range for the EURUSD in 2019 could only extend to 691 pips.  That was the lowest range going back to 1980. The prior low was 883 pips back in 1996.  In 1997, the range rose to 2280 pips.

The low for the year reached 1.0879. The high for the year was up at 1.1570. The pair is 347 pips or so off the low price and 344 pips off the high price. That puts the pairs price smack dab in the middle of the trading range for the year.  Which way do we tilt in 2020?
GBPUSD

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S&P, Nasdaq have best year since 2013

  
Analysis, Global Indices, US Market
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Nasdaq up over 35% on year

The US stock market is closed for the year, and oh what a year it was.
The S&P index and the NASDAQ index both had their best years since 2013. The NASDAQ index led the way for the year with a gain of 35.23%. The S&P index rose by 28.87%. The Dow industrial average was limited with a 22.33% gain. Boeing weighed on that index in 2019.
For the day, the major indices are closing near highs:
  • S&P index rose 9.41 points or 0.29% to 3230.70
  • NASDAQ index rose 26.611 points or 0.30% to 8972.60
  • Dow rose 76.1 points or 0.27% to 28538.24
Globally for the year, the Nasdaq index was the largest gainer (+35.23%) followed by the S&P index (+28.88%) and Italy’s FTSE MIB (up 28.28%).  The Shanghai composite index had a impressive 22.1% return.  France’s Cac and Germany’s DAX rose 26.37% and 25.48% respectively.
The worst performing index was the Portuguese PSI20 at 10.20% and Spain’s Ibex at 11.82%.  The UK FTSE, with all the upheaval and uncertainty from Brexit and the political upheaval, had a limited (relatively) gain of 12.10%.
The YTD returns were impressive in 2019

European shares end the day lower

  
Analysis, Global Indices
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German DAX, -0.66%. UK’s FTSE, -0.68%

the major European stock indices are ending the day with declines. The provisional closes are showing:
  • German DAX, -0.66%
  • France’s CAC, -0.79%
  • UK’s FTSE, -0.68%
  • Spain’s Ibex, -0.74%
  • Italy’s FTSE MIB, -1.06%
  • Portugal’s PSI 20, -0.62%
In the European debt market, yields moved sharply higher with the UK 10 year benchmark note leading the way with a rise of 11 basis points.
German DAX, -0.66%. UK's FTSE, -0.68%_In other markets as European traders exit:
  • Spot gold is higher by $5.60 or 0.37% at $1516.18. It is trading at the highs for the day with the low down at $1510.86
  • WTI crude oil futures are down $0.17 at $61.54, after failing to hold above the $62 level. The high price for the day reach $62.34
The US stocks are trading lower on the day led by declines in the NASDAQ index
  • S&P index -14 points or -0.44% at 3226
  • NASDAQ -51.18 points or -0.57% at 8955.82
  • Dow -129 points or -0.45% at 28514

US yields are also higher with the yield curve steepening. The 2 – 10 year spread has widened out to 34.28 basis points from 29.4 basis points on Friday.

US yields are higher

Your guide to China’s ‘big bang’ 2020.100% foreign ownership in financial industry.

  
  Analysis
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China will accelerate opening up of its commercial banking and securities sectors, among others, next year.

For example:
  • foreign insurers can apply to set up 100%-owned units offering life insurance (this segment accounts for three-quarters of the Chinese insurance market)
  • from January 1 overseas firms will be allowed to set up their own entities to trade futures
  • offshore firms will be able to apply for licenses to start wholly owned mutual fund management firms in April
And, plenty more here at the link

Asian markets return today, but holiday mode will persist – here is what’s on the calendar

  
  Analysis
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Coming up today on what will be a lower than usual liquidity session:

2330 GMT Tokyo inflation data for December – Tokyo area CPI (national level CPI for the month follows in three weeks). The y/y rate has received a wee boost from the October 1 sales tax hike. But not much.

  • Tokyo CPI y/y, expected 0.9%, prior was 0.8%
  • Tokyo CPI y/y excluding Fresh Food, expected 0.6%, prior was 0.6%
  • Tokyo CPI excluding Food, Energy y/y, expected 0.7%, prior was 0.7%

Also at 2330 GMT Japan Jobless (Unemployment) rate for November

  • expected 2.4 %, prior 2.4%

and Job to applicant ratio for November

  • expected 1.57, prior 1.57

2350 GMT Bank of Japan monetary policy meeting ‘Summary of Opinions’ of the December meeting

  • this precedes the minutes of that meeting by many, many weeks.

2350 GMT Japan Retail sales for November

expected 5.0% m/m, prior -14.2% (the huge drop was helped along by that sales tax hike I mentioned above)

  • expected -1.7% y/y, prior -7.0%

2350 GMT Japan Industrial Production for November (preliminary)

  • expected -1.0% m/m, prior -4.5%
  • expected -8.1% y/y, prior -7.7% (trade wars have weighed on exports which in turn have impacted IP)

0130 GMT China Industrial Profits for November % y/y

  • prior -9.9% (trade war and negative PPI big factors in this)

BOJ minutes: Downside risks to overseas economies remained signficant

  
  Analysis
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Minutes of the Bank of Japan October 2019 monetary policy meeting.

  • most members shared view that there had been no further increase in the possibility that the momentum toward achieving the price stability target would be lost
  • most members shared view downside risks to overseas economies remained significant, must continue to pay close attention to chance inflation momentum would be lost
  • one member said given downside risks, BOJ should continue to examine whether additional monetary easing would be necessary
  • some members said BOJ must not hesitate to take additional easing measures if there was a greater possibility momentum toward achieving the price target would be lost
  •  important to enhance cooperation with government on economic policies

Headlines via Reuters

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