Market Roundup
• US Nov Industrial Production MM, 0.2%, 0.3% forecast, 0.9% previous 1.2% revised.
• US Nov Capacity Utilization MM, 77.1%, 77.2% forecast, 77.0% previous.
• US Nov Manufacturing Output MM, 0.2%, 0.3% forecast, 1.3% previous, 1.4% revised.
• US Dec NY Fed Manufacturing, 18.00, 18.60 forecast, 19.40 previous.
• Republicans finish U.S. tax bill, will release details later in the day.
• Fed's Evans says voted against rate hike over inflation concerns.
• Tillerson urges lull in N.Korea 'threatening behaviour' before any talks.
• U.S. derivatives watchdog outlines exemptions for virtual currency trades.
• EU moves to Brexit phase two but warns will be tough.
• CA Oct Manufacturing Sales MM, -0.4%, 0.8% forecast, 0.5% previous, 0.4% revised.
• Japan plans record budget spending, less new debt in fiscal 2018 – sources.
• SPD agrees to talks on joining German government, Merkel urges quick action.
• Peru lawmakers file motion to impeach president Kuczynski.
Looking Ahead - Economic Data (GMT)
• 17 Dec 23:50 Japan Nov Exports YY, 14.6% forecast, 14.0% previous
• 17 Dec 23:50 Japan Nov Imports YY, 18.0% forecast, 18.9% previous
• 17 Dec 23:50 Japan Nov Trade Balance Total Yen, -54.9 bln forecast, 285.4 bln previous, 284.6 bln revised
• 18 Dec 00:30 Australia Nov New Motor Vehicle Sales m/m, 0.0% previous
• 18 Dec 01:30 China Nov House Prices YY, 5.4% previous
• 18 Dec 02:00 New Zealand Nov RBNZ Offshore Holdings, 58.3% previous
Looking Ahead - Events, Other Releases (GMT)
• 09:00 ECB council member and Bank of Finland Governor Liikanen speaks at a news conference in Helsinki
Currency Summaries
EUR/USD is likely to find support at 1.1700 levels and currently trading at 1.1754 levels. The pair has made session high at 1.1800 and hit lows at 1.1747 levels. The euro declined against the U.S. dollar on Friday as the dollar strengthened across the board on U.S. tax legislation optimism. Republican negotiators in the U.S. Congress put the finishing touches on a sweeping tax overhaul, raising expectations that the bill would be passed by year-end. Representative Kevin Brady, chairman of the tax-writing House Ways and Means Committee, told reporters that Republicans on the House-Senate negotiating committee working on the revamped bill had signed the finished product and the details would be published when the full House convenes at 5:30 p.m. EST (2230 GMT). The tax bill needs a simple majority to pass in the Senate, in which Republicans hold just 52 of the 100 seats, and no Democrats are expected to support it. Many investors expect that the tax overhaul may boost U.S. growth, leading to more interest rate hikes and a higher dollar. The dollar index against a basket of six major currencies rose 0.49 percent to 93.944. The euro was down 0.2 percent to $1.1754.
GBP/USD is supported in the range of 1.3275 levels and currently trading at 1.3324 levels. It reached session high at 1.3338 and dropped to session low at 1.3298 levels. Britain's declined sharply against the dollar on Friday despite news that Brexit negotiations would move on to the next stage in January, as investors booked some profits following recent gains. The European Union agree to move talks forward with London on Britain's exit from the bloc, but there was little clarity on trade issues and Austria warned the Irish border issue remained a "riddle. Sterling reversed earlier gains and fell 0.9 percent on the day at $1.3307 and nearing a two-week low of $1.3305 hit earlier this week. The fall, at its lowest level to 1.3319, was the biggest intra-day drop since early November. The pound had rallied on Thursday after solid economic data. With little support from the Bank of England (BoE), which on Thursday stuck to its view that interest rates were likely to rise only gradually despite above-target inflation, the key drivers for sterling are likely to be Brexit-related. The BoE said in a statement that last week's breakthrough in Brexit talks had reduced the risk of Britain leaving the EU in a disorderly way and might boost economic confidence. Investors have turned slowly bullish on sterling in recent weeks, with net positioning data showing a gradual increase in long British pound bets, though any disappointment over Brexit negotiations may see sterling skid sharply lower.
USD/CAD is supported at 1.2745 levels and is trading at 1.2879 levels. It has made session high at 1.2889 and lows at 1.2775 levels. The Canadian dollar strengthened against its U.S. counterpart on Friday as Canadian dollar was weighed down by downbeat Canadian manufacturing data and stronger greenback across the board. Manufacturing sales fell 0.4 percent in October, pulled down by weak sales of autos and other transportation equipment, data from Statistics Canada indicated. Analysts had forecast a 0.8 percent increase. The loonie got a boost on Thursday after Bank of Canada Governor Stephen Poloz said in a speech that the central bank was increasingly confident the economy will need less stimulus over time. The currency gave up some of those gains after dovish remarks by Poloz in a subsequent interview. U.S. crude prices gained 0.6 percent to $57.4 a barrel, supported by a pipeline outage in the North Sea. Oil is one of Canada's major exports. The U.S. dollar edged higher against a basket of major currencies as the United States Congress wrangled over a bill to change the tax code. The Canadian dollar was trading at C$1.2876 to the greenback, down 0.1 percent. The currency traded in a range of C$1.2740 to C$1.2889.
USD/JPY is supported around 112.00 levels and currently trading at 112.56 levels. It peaked to hit session high at 112.73 and made session lows at 112.15 levels. The U.S. dollar rose against the Japanese yen on Friday as a long-awaited tax bill that would cut corporate tax rates looked like it would win support among lawmakers. Republicans were expected to release final details of their plan on Friday, with decisive votes in the House of Representatives and the Senate seen next week. By late afternoon CNBC was reporting that Republican Marco Rubio would support a compromise bill. Rubio had spoken out against the bill as he sought an expansion of child tax credits. The bill, which in its current form proposes to lower the corporate tax rate to 21 percent from 35 percent. The U.S. currency has waxed and waned with the prospects for the Republicans' tax cuts. Passage would tend to support the dollar, while a failure could see a sharp reversal in the currency. On the data front, U.S. industrial production rose less than expected in November as a drop in utilities output offset a post-hurricane rebound in the oil and gas industries and the third consecutive monthly advance for manufacturing, the Federal Reserve said on Friday. Overall industrial output rose 0.2 percent following an upwardly revised 1.2 percent gain in October. Economists polled had forecast industrial output rising 0.3 percent last month.
Equities Recap
European shares fell on Friday, weighed down by weakness in the heavyweight banking sector and a slump in retail stocks following a disappointing trading update from fashion brand H&M.
UK's benchmark FTSE 100 closed up by 0.5 percent, the pan-European FTSEurofirst 300 ended the day down by 0.20 percent, Germany's Dax ended up by 0.3 percent, France’s CAC finished the day down by 0.1 percent.
Wall Street's three major indexes scaled new heights on Friday, with all major sectors pushing higher as a long-awaited tax bill that would cut corporate tax rates looked like it would win support among lawmakers.
Dow Jones closed up by 0.56 percent, S&P 500 ended up 0.87 percent, Nasdaq finished the day up by 1.13 percent.
Treasuries Recap
The margin between U.S. shorter-dated and longer-dated Treasury yields shrank to its smallest in a decade on Friday, based on traders' expectations that the Federal Reserve would increase short-term interest rates further and long-term inflation would stay tame.
The yield spread between five-year and 30-year Treasuries contracted to 52.80 basis points, a level last seen in October 2007. It later ticked up to 53.1 basis points, compared with 56.6 basis points on Thursday. The five-year and 30-year yield gap has narrowed by 60 basis points since late December.
The yield on benchmark 10-year Treasury notes was 2.360 percent, up over 1 basis point from late on Thursday.
The two-year yield rose 3 basis points to 1.840 percent, short of the more than nine-year peak of 1.852 percent set on Wednesday. On the other hand, the 30-year yield touched 2.690 percent, its lowest since Sept. 8.
Commodities Recap
Gold prices clung to earlier gains and were poised for their first weekly gain in four weeks on Friday, withstanding pressure from strong equities markets on continued support from this week's interest rate rise by the Federal Reserve.
Spot gold was up 0.19 percent at $1,255.12 per ounce by 2:22 p.m. EST (1922 GMT), up 0.6 percent for the week as it recovered from Monday's five-month low of $1,235.92. The most active U.S. gold futures for February delivery settled up 0.03 percent, at $1,257.50 per ounce.
Oil prices were mixed on Friday, lingering below two-year highs on Friday as the continuing outage of a North Sea pipeline and OPEC-led production cuts supported prices, while climbing U.S. output kept a lid on gains.
Brent crude futures were down 4 cents at $63.27 a barrel by 1:58 p.m. EST (1858 GMT). U.S. West Texas Intermediate (WTI) crude futures were up 25 cents at $57.29 a barrel. WTI hit a two-year high of $59.05 on Nov. 24.
