The penultimate trading day in 2013 played out as expected, with volumes restricted due to the holiday season and traders squaring their books ahead of year-end. The S&P finished its session essentially unchanged from Friday, while the front-end of the VIX curve saw decent demand as traders looked to protect some profits before the ball drop this evening, pushing cash VIX up over 1 vol to 13.5%. The holiday-thin liquidity was clearly evident in FX markets, with a worse than expected US Pending Home Sales number for November seeing the DXY hit hard as macro selling overpowered the bid-stack and sent the index for a test of the 80.0 handle.
Analysts had forecast a 1.0% increase in homes under contract to be sold during the month of November, yet a 0.2% print was all the housing market was able to muster. The positive spin on the report was that the slide in pending home sales appears to be flattening, and may have found a bottom, as the slight increase breaks a five-month streak of negative prints. The hope is that positive labour fundamentals nurture constructive activity in the housing sector for 2014, however this was the fifth-month in a row where pending home sales have missed expectations, and had traders looking to decrease exposure to the buck. Commodity-linked currencies led the grind higher against the USD, with the CAD and AUD each gaining roughly 0.5% against their American counterpart. Excess supply of USDCAD was sopped up in the mid-1.06s, after running into support at the lower-bound of the upward trend-line and the 21 day moving average.
An overnight recap saw mixed performance for equities, with Chinese stocks on firm ground heading into 2014, while Australian shared underperformed. The Yen strengthened throughout the Asian session due to a soft dollar which caused USDJPY to test the 105 handle to the downside, but despite the overnight performance the JPY has fallen over 20% against the USD during 2013, with USDJPY set for its best annual gain in 34 years.
The champagne was already uncorked in Germany, with the Dax now shuttered for 2013 and registering a gain on the year 26%. Of the notable indices that are open today in Europe, the CAC and FTSE are trading in the green, bidding farewell to the year on positive footing. The EUR is slightly lower against the USD this morning, with the pair backing away from the 1.3800 handle after the ECB was unable to sterilize the aimed quantity of bond purchases under its SMP program yesterday, effectively raising some red flags liquidity at year-end in Europe is at a premium.
Heading into the North American open, equity futures are telegraphing a higher open to the markets when the bell rings, although the performance is cautiously optimistic at best. On the energy front, another train derailment and collision of tankers carrying crude occurred in North Dakota setting off a series of explosions and fires, again highlighting the increasing concerns with shipping oil by rail. In addition, Warren Buffet’s Berkshire Hathaway Inc. will be swapping $1.4bn in shares of Phillips 66 for full ownership of its pipeline-service business, increasing his firms bullish stance on oil transportation in 2014. Front-month WTI was down past $99/barrel this morning, although the spread between WTI and WCS has narrowed into the low $26s, but has been unable to generate too much demand for the Loonie this morning. USDCAD sits essentially unchanged as we get ready for the opening bell on Wall Street, pivoting around the mid-1.06s in thin holiday trading.
There is a good amount of second-tier economic data that will be seeping into the markets later this morning, with the likelihood that any material deviations from analysts’ estimates could see some volatile trading conditions in the shortened trading day before the books are officially closed on 2013.
Further housing data from the US is due to be released at 9:00am EST, with the Case-Shiller House Price Index forecast to show a 13.0% increase on a y/o/y basis for October. US Consumer Confidence is also on the docket for10:00am EST, with analysts estimating consumers will take a more optimistic outlook on the current and future levels of economic conditions in the US. Expectations are for the confidence reading in December to rise to 76.0, a healthy increase from the 70.4 witnessed in November. With the heightened levels of volatility due to reduced liquidity witnessed yesterday, make sure to speak with your dealing teams ahead of the releases, as limit orders and trailing stops could be a good way to take advantage of the choppy trading conditions.
Further reading:
EUR/USD Dec. 31 – Lower in Thin Trade
GOLD: Collapses, Set To Weaken Further
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