Intraday Market Thoughts

Abe Secures Majority, Tankan Next

by Adam Button
Dec 14, 2014 22:40

The US dollar is broadly, albeit mildly lower in early-week trading. There was no significant market reaction to Abe's resounding win in Sunday's election but the focus will remain on Japan with Q4 Tankan data due at 23:50 GMT/London time. A full analysis on the S&P500 other indices from Ashraf will be released on Monday to Premium Insights subscribers.

The US dollar is down 15-20 pips across the board as the market struggles to understand the flight to quality on Friday. The S&P 500 finished down 33 points to 2002 to cap the largest one-week loss since May 2012.

A clue was in the bond market where 5-year breakevens fell nearly 10 basis points and imply average inflation of 1.14% over that period. That will weigh heavily on Fed officials who meet on Tues/Wed for the final time this year.

As crude continues to crater, it gives officials plenty of breathing room if they don't want to hike rates. A debate rages in the bond market about whether lower yields signify that the Fed won't hike rates, won't hikes rates as high or will hike rates but it will be a mistake that will cause the US economy to stumble.

In Wednesday's statement, if the Fed removes 'significant time', even if Yellen replaces it with 'patience', it will cause markets to price in a mid-year hike.

In Japan, Abe proved to be politically savvy in calling an election even as GDP data fell to shocking levels. His coalition retained a two-thirds majority, and that gives him a fresh mandate for reform but so far he has placed most of his faith in currency weakness.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -136K vs -159K prior JPY -104K vs -111K prior GBP -24K vs -31K prior AUD -45K vs -41K prior CAD -14K vs -18K prior CHF -22K vs -22K prior NZD -2K vs -2K prior

Euro and yen longs were trimmed as the US dollar gave back some of its gains. Some might point to year-end position squaring but these numbers tend to hold through the holidays. We're a bit puzzled at the lack of anti-CAD sentiment given the fall in oil.


Act Exp Prev GMT
Tankan Large Manufacturing Outlook (Q4)
14 13 Dec 14 23:30
Tankan Non - Manufacturing Index (Q4)
12 13 Dec 14 23:50
Tankan Non - Manufacturing Outlook (Q4)
14 14 Dec 14 23:50
Tankan Large Manufacturing Index (Q4)
13 13 Dec 14 23:50

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