Many financial centers in Asia and Europe are on holiday today, and those that are open, are experiencing a minimum of activity. Turnover may pick up briefly in the North American morning, but conditions will remain thin and only those who need to transact will.
The US reports weekly jobless claims and the Chicago PMI. The holiday-shortened week may limit the changes in the weekly jobless claims though we note that the four-week moving average finished 2014 near 287k, and now it stands at 272k. The Chicago PMI has been notoriously volatile. It slumped to 48.7 in September, bounced to 56.2 in October only to fall back to 48.7 in November. In December, it is expected to have risen back to 50.
Next Friday, January 8, the US reports the monthly jobs data. The early call is for a 200k increase in nonfarm payrolls, though due to favorable base effect, the average hourly earnings are expected to jump to 2.8% year-over-year, which would be the largest increase in six and a half years. It will likely sharpen expectations for the second Fed hike in March.
Meanwhile, today, the ranges in the foreign exchange market are tight, though the dollar is mixed overall. The euro is confined to about a quarter of a cent range against the dollar. The dollar is in about a quarter of a yen range against the Japanese currency, where local markets were closed. Sterling is in a third of a cent range. The Australian dollar is the strongest of the majors, gaining about 0.3%. It has been bid through $0.7300 to reach its best level in three weeks.
Equity markets were mixed in Asia, but the bias is on the downside among the European bourses that are open. Of note, the Shanghai Composite slipped almost 1%, and is finishing the year with almost a 9.5% gain, after a spectacular run-up in the first part of the year and just as dramatic of a sell-off over the summer. The resumption of IPOs and the end of the ban selling from large holders may pose fresh challenges at the start of the New Year.
Although the MSCI Emerging Market equity index is up about 0.2% on the day, it is off about 17% for the year. The MSCI World Index (developed markets) is 2% lower on the year, ahead of the US and Canadian market performance today. The S&P 500 is up 0.2% for the year. The NASDAQ is up closer to 7% while the Dow Jones Industrials are off 1.2%.
Bond markets are more subdued today than equity markets. Most markets are unchanged. There are two exceptions to note. First is the sell-off in Australia, where the 10-year yield jumped. At 2.87%, the 10-year yield is the highest since earlier this month. Thin conditions seemed to exaggerate the ongoing curve steepening. The second exception is the UK, where the 10-year yield is off nearly three bp. The gilts are recovering from yesterday’s exaggerated decline that say yields rise nine bp.
The US 10-year yield closed 2014 near 2.17%. It is now near 2.30%. The shorter end of the coupon curve saw a larger move as it is more anchored to Fed policy. The two-year yield is near 1.07% now after finishing last year near 67 bp