Risk-off flows extended their stay in the financial markets as traders might be lightening up on their positions ahead of the Fed decision later in the week.
Other likely factors that kept traders away from riskier holdings were good ol’ Brexit uncertainty and trade-related jitters as the U.S. and China reportedly threw shade at each other.
- Canadian foreign securities purchases down from 7.76B CAD to 3.98B CAD
- Empire State manufacturing index fell from 23.3 to 10.9 vs. 20.1 forecast
- U.S. NAHB housing market index down from 60 to 56 vs. 61 forecast
- Australia’s CB leading index down by 0.5%, previous 0.1% dip
- U.K. PM May: Meaningful vote in third week of January
- May: There is no EU plot to keep us in the backstop
- May: Cabinet to discuss “no deal” plans this Tues
PM May’s speech
Another day, another attempt by PM May to rally support for the Brexit deal. This time, she tried to assure parliament that there is no secret plot by EU leaders to keep the Irish border backstop permanently in place.
Although she didn’t get much evidence of reassurance from EU leaders in the days prior, May reiterated that comments from them have legal status. She also highlighted an explicit termination clause in the Brexit agreement but cited that she’ll continue looking for ways to empower parliament over the backstop.
Here’s what’s coming up next: The Cabinet will discuss “no deal ” plans on Tuesday, and the meaningful vote is due on the third week of January. The U.K. is scheduled to leave the EU in 14 weeks.
U.S. markets seem to be feeling anxious leading up to this week’s Fed statement as another hike is expected. Although traders also expect the central bank to tone down their hawkish rhetoric, some fear that downgraded estimates could signal a potential recession.
It didn’t help that the Fed was once again under fire from the White House for their aggressive pace of tightening. The POTUS tweeted:
It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the Victory!
— Donald J. Trump (@realDonaldTrump) December 17, 2018
Equity indices closed more than 2% lower:
- Dow 30 index is down 507.53 points to 23,592.98 (-2.11%)
- S&P 500 index is down 54.01 points to 2,545.94 (-2.08%)
- Nasdaq is down 156.93 points to 6,753.73 (-2.27%)
Crude oil was also significantly lower for the session as oversupply fears returned on Genscape data showing that inventories at the storage hub of Cushing rose by more than 1 million barrels.
Major Market Mover(s):
Another leg lower for crude oil weighed on the positively-correlated Loonie, which was already being dragged lower by risk-off flows.
USD/CAD popped up from 1.3357 to 1.3413; CAD/JPY slumped from 84.66 to 84.13; EUR/CAD is up to 1.5223 from 1.5194, and GBP/CAD climbed from a low of 1.6856 to 1.6920.
CHF & JPY
With traders seemingly uneasy about betting on the dollar ahead of the FOMC, the other lower-yielders like the franc and yen cashed in on most of the safe-haven flows.
USD/CHF dropped from .9937 to .9928; AUD/CHF fell from .7155 to .7125; GBP/CHF is down from 1.256o to 1.2523; CAD/CHF slipped to the .7400 mark, and NZD/CHF is down to .6758.
USD/JPY tumbled from 113.31 to 112.75; EUR/JPY slipped from 128.48 to 127.92; GBP/JPY dropped from 142.88 to 142.33, and AUD/JPY is down to 80.97.
Watch Out For:
- 12:00 am GMT: New Zealand’s ANZ business confidence index (-37.1 previous)
- 12:30 am GMT: RBA monetary policy meeting minutes
- Tentative: Australia’s HIA new home sales (-0.8% previous)