Action Insight

Dollar shows little reaction to mixed economic data released from the US. Personal income rose 0.3% in November, below expectation of 0.4%. Spending rose 0.6%, above expectation of 0.5%. Inflation data are positive. Headline PCE accelerated to 1.8% yoy, up from 1.6%, in line with consensus. Core PCE accelerated to 1.5% yoy, up from 1.4% yoy, meeting expectation of 1.5% yoy. However, durable goods orders disappoint. Headline durable goods orders rose 1.3% in November, below expectation of 2.2%. Ex-transport orders dropped -0.1%, below expectation of 0.5% rise. The greenback continues to trade as the third weakest one for the week, just next to Yen and Swiss Franc.

Canadian Dollar remains generally firm today but it's overwhelmed by Aussie on commodity prices. Meanwhile, Euro trades mildly lower as results of the Catalonia regional election provide no resolution to the political crisis. Dollar again attempts to recover today but it's trading in red against all others expect Yen for the week. The greenback will need some solid PCE inflation data if it's going to have a sustainable rally.

Canadian Dollar soars in early US session after impressive economic data. Head line retail sale rose 1.5% mom in October versus expectation of 0.3% mom. Ex-auto sales rose 0.8% mom versus expectation of 0.4% mom. Inflation data also came in generally stronger than expected. Headline CPI accelerated to 2.1% yoy, up from 1.4% yoy and beat expectation of 2.0% yoy. CPI core median rose to 1.9% yoy, up from 1.7% yoy and beat expectation of 1.7% yoy. CPI core trim rose to 1.8% yoy, up from 1.5% yoy, beat expectation of 1.5% yoy. Nonetheless, CPI core common slowed to 1.5% yoy, down from 1.6% yoy and missed expectation of 1.7% yoy. The set of data adds to the case for BoC to raise interest rate again in Q1. USD/CAD dipped to as low as 1.2719, comparing to this week's high at 1.2919.

As widely anticipated, BOJ again voted 8-1 to leave the monetary policies unchanged in October. The targets for short- and long-term interest rates stay at -0.1% and around 0%, respectively while the guideline for JGB purchases remains at an annual pace of about 80 trillion yen. The central bank has turned more upbeat on the economic outlook, especially on Capex and consumption. Goushi Kataoka was again the lone dissent as he supported bond purchases so as to facilitate the decline of 10-year (or over) bond yields. Governor Kuroda's speech at the press conference has not tilted towards less easing/ policy normalization in the near-term

US tax plan has now only one more stepto take, President Donald Trump's signature, and it will become law. Market's reactions were relatively muted yesterday after House and Senate approvals. DOW closed slightly down by -0.11% at 24726.65. S&P 500 lost -0.08% to end at 2679.25. In the currency markets, Dollar trades mildly higher today, but remains the second weakest for the week. Yen is the worst performing one as pressured by powerful rally in treasury yields. BoJ's standing pat provides little inspiration to the Japanese currency. Meanwhile, Euro remains the strongest one for the week, followed by Swiss Franc.

Yen continues to trade as the weakest one as German yield rises for another day. At the time of writing, 10 year bund yield rose another 3 pts to 0.41%. USD/JPY rises on that and and breaks 113 handle. But the greenback is seen soft elsewhere. Developments regarding the tax plan were positive. Senate finally voted 51-48 to pass the bill. House passed the bill yesterday with 227-203 votes. But due to technical glitches, House will have to re-do it again today. But that should just be procedural. Elsewhere, Sterling is trading rather firm today despite growth forecast downgrade by IMF.

Euro is trading as the strongest currency this week as boosted by a surge in German yields. Meanwhile, Dollar is holding a soft tone after House passed the tax bill and then came back with a hiccup. Nonetheless, the Chambers will probably pass the unified version on Wednesday, giving it enough time for President Donald Trump to sign it before Christmas. Elsewhere in the currency markets, Kiwi tumbles broadly today after much worse than expected trade deficit. Yen followed closely as pressured by surging global yields.

Dollar continues to trade generally soft, except versus Yen and Sterling. While tax bill optimism boosted stocks to record high, the greenback's reaction remains indifferent. The House will vote on the tax bill today and will very likely pass it. Senate is expected to follow shortly after scheduled debate. Released from US, housing starts rose 3.3% mom to 1.297m annualized rate in November. Building permits also rose 1.4% mom to 1.298m annualized rate. Both came in above market expectation. Current account deficit narrowed to USD -101b in Q3.

The RBA minutes for the December meeting revealed that policymakers were more upbeat on the global and domestic economic outlook. While maintaining a natural monetary policy stance, the minutes contained some hawkish ingredients, suggesting that recent data on employment and inflation have made the members more confident. The key concerns remained subdued wage growth and household consumption.

While the it looks like Dollar couldn't care less, global equities seem to be responding very well to the developments on the US tax plan. House and Senate Republicans are expected to pass the final bill mid-week. And the bill could then be on President Donald Trump's desk before Christmas. Nikkei closed up 1.55% at 22901.77 earlier today. European indices follow and gains broadly. In particular, DAX is up 1.6% at the time of writing while CAC 40 is up 1.2%. In the currency markets, major pairs and crosses are generally stuck in range with exception in weakness in Canadian Dollar. Euro is trading broadly higher with Nov Eurozone CPI finalized at 1.5% yoy.

Overshadowed by a series of central bank meetings last week, China's macroeconomic data were mildly disappointing. Yet, this should not affect the country's growth to reach its full-year growth target of +6.5%. Indeed, the PBOC's monetary tightening on December 14, closely following the Fed's rate hike, is a manifestation that the government remains confident over the economic outlook. The three-day Central Economic Work Conference (CEWC) beginning today (December 18) would reveal China's economic policy and the closely-watched GDP growth target for 2018. We expect the politburo might revise lower the target from this year's +6.5%, and/ or adopt more flexibility in it language.

Markets are rather quiet as they start the pre-holiday week. Dollar attempts to rally on news of the tax bill, but there is little momentum seen. Yen trade broadly softer despite positive trade data. Weakness in Swiss Franc and Yen suggest that markets are in mild risk seeking mode. Aussie and Kiwi are generally firmer, followed by Euro. But overall, the forex markets are generally staying in Friday's range, without a clear direction.

After some roller-coaster rides during the week, Dollar staged a broad based come back before the weekly close. The Republicans' tax plan is now back on track for being signed off by US President Donald Trump, by the end of the year, probably even before Christmas. There were various factors sank the greenback. Tamer than expected core CPI reading was one. An additional dissenter in Fed's rate hike was another. But looking back, the uncertainty on whether Senate could get the bill passed was probably the biggest weight on Dollar. It's still early to tell but focus will now be on whether Dollar could stage a sustainable turnaround before year end.

Dollar stays broadly weak today as Republicans' tax plan is entering the final stage with some political jitters. Nonetheless, the Pound is overtaking Dollar is the weakest one. News that Brexit negotiation is formally entering the next phase provides little support to Sterling. Euro recovers today on news that German SPD is willing to formally start coalition talk with Angela Merkel's CDU/CSU. But the common currency will still likely end as the third weakest as markets took ECB announce negatively. Commodity currencies are set to end the week as the strongest ones

As widely anticipated, ECB left the policy rates unchanged, with the main refinancing rate, the marginal lending rate and the deposit rate staying at 0%, 0.25% and -0.40% respectively. The focus of the meeting was on the updated economic projections and the press conference. For the former, accompanying the upbeat statement were upgrades of GDP growth and inflation forecasts. The staff has also unveiled the 2020 outlook for the first time. For the latter, little news revealed with President Mario Draghi refraining from discussing the internal division over the future of the QE program. He, however, reiterated that the monetary policy should remain accommodative as inflation has yet to be self-sustainable.

Dollar's data inspired rally overnight was brief and weak. The greenback is still set to end as the weakest major currency for the week despite a Fed rate hike. It seems like markets are rather worried on passage of the reconciled tax bill in the Senate. Euro is indeed trading as the second weakest one for the week. Even though ECB raised both growth and inflation forecasts, it's still not going to meet 2% inflation target before 2020. Commodity currencies are trading broadly higher for the week. Canadian Dollar was given a boost by BoC Governor Stephen Poloz's upbeat comment. But it's overwhelmed by Aussie and Kiwi.

Dollar is trying to regain some ground in early US session after ultra-low jobless claims and strong retail sales. Indeed, at the time of writing, the greenback is trading up against all but Aussie for today. Nonetheless, after yesterday's post CPI and FOMC selloff, Dollar has to do more to convince the markets of its momentum. Meanwhile, Euro is actually trading as the strongest one today, trailing Dollar closely. The common currency is lifted by strong Eurozone PMIs. ECB also raised growth and 2019 inflation forecasts in the latest projections. Elsewhere, BoE and SNB stand pat as widely expected.

The BOE voted unanimously to leave the Bank rate unchanged at 0.5% in December, following a historic rate hike in the prior month. Policymakers also decided to leave the asset purchase program unchanged at 435B pound. Overshooting of inflation remains a key concern with the central bank putting its blame on British pound's weakness. Policymakers noted that recent macroeconomic data have been "mixed" and raised the concern that GDP growth might slow in 4Q17. The central bank also acknowledged the progress of Brexit negotiations, suggesting that it has helped support the pound. We expect the BOE would keep its powder dry at least for the first half of next year, unless abrupt changes in the growth and inflation developments.

While leaving the policy rates unchanged for another month and pledged to continue FX market intervention when needed, the SNB has turned less dovish in December. It has turned more upbeat over the economic recovery outlook and acknowledged the depreciation of Swiss franc and the euro and US dollar. the central bank revised modestly higher the inflation forecasts for this year and 2018, while leaving that for 2019 unchanged.

The greenback got dumped, as a result of a series events happened over the past day. Defeat of GOP Roy Moore in the Alabama Senate race and the miss of the core CPI were followed by a final version of tax bill. The day culminated in the conclusion of the FOMC announcement, which saw a 25 bps rate hike as expected, but with two dissents. US dollar fell against major currencies with the DXY index losing -0.71% for the day. Treasuries firmed, sending yields higher with the 2-year and 10-year yields dropping -4 points and -5 points respectively.