US data is beginning to highlight the disconnect between the US and the Euro-zone. As FX traders hone their Fixed Income (FI) skills with the Euro sovereign debt issues, even they must sympathize with the frustration of the US bond bears. The benchmark 10-year Treasury yield has defied improving US data, and straddles the +2% yield for most of this year. ItÃ¢â‚¬â„¢s another crowded market trade that mirrors the frustrations of the Ã¢â‚¬ËœshortÃ¢â‚¬â„¢ single currency strategy. Euro-zone concern remains in the driver seat while US data for now, acts like Ã¢â‚¬Å“RobinÃ¢â‚¬Â of the relationship. Yields for Treasuries or other Ã¢â‚¬Ëœsafe haven sovereign debtÃ¢â‚¬â„¢ are not in danger of rallying any time soon until the Euro-zone stabilizes.
Below are some other highlights of the week:
- US: Martin Luther King Day on Monday was respected by the markets; it was also to be the lead for a quiet beginning of the week, or so we thought. Lack of liquidity led to thin markets, producing volatility that allowed dealers print a new yearly EUR/USD low.
- CAD: New Motor vehicle sales fell-1% in November to +137.6k units, offsetting the October and September gains. Truck sales fell -1.3% to +80.4k units.
- USD: January Empire State Index on manufacturing conditions in New York of 13.48 was stronger than the consensus of 11. It was a rise from 8.19 in December and a third straight improvement from a series of negatives.
- CAD: The BoC, as expected, kept O/N rates on hold at +1%, reporting there is considerable monetary policy stimulus in Canada. Carney sees less slack in an economy that is now expected to return to full capacity by the 3Q in 2013. Inflation was seen as marginally firmer.
- USD: US wholesale prices fell in December as food and energy costs declined significantly. PPI (manufactures and wholesales) declined a seasonally adjusted -0.1%. A slowdown of costs may give the Fed more wriggle room. Core-PPI increased by +0.3% (the largest increase in seven-months).
- USD: November TIC report recorded a net rise of $59.8B. Foreign holdings saw a large rise from Japan $59.9b and a small decline from china -$1.5B.
- USD: December Capacity Utilization increased +0.3pt at 78.1%.
- CAD: BoC Monetary Report. There was a major shift in tone in the US outlook that sees US growth forecast improve to +2% in 2012 from +1.7% in the previous MPR. The other main take away is a downgraded Europe forecast with growth now to be in recession territory at -1% in 2012 from +0.2% in the previous report.
- BRL: The Brazilian Central Bank (BCB) cut the Selic rate by -50bp to +10.50%. “A moderate adjustment in the basic rate level is consistent with the scenario of inflation convergence to the target in 2012″. BCB seems to be signposting further cut rates. Analysts are expecting another -100bsp by March.
- CAD: Canadian Manufacturing shipments advanced at a faster pace in November than forecasted, up +2% to $49.1b. Robust gains were seen in the petroleum and coal industry.
- USD: US December CPI ex-food and energy at +0.1% was unchanged.
- USD: December Housing starts were weaker than expected with a -4.1% fall to +657k, while building permits at +679k were down a marginal -0.1%. Starts declines were due to a correction lower in multiples.
- USD: Weekly initial claims plummeted -50k to +352k, while continuing sank to +3.4m. US data is beginning to highlight the discount between the US and the Euro-zone.
- USD: The Philly Fed disappointed with a 7.3 print (10.3). However, there were pockets of strength, business conditions were up, and employment was moderately higher while new orders and prices paid dropped.
- CAD: Consumer prices declined in December at the fastest in six-months. On a monthly basis, both the CPI and the core fell in the month, -0.6% and -0.5% respectively. For 2011, CanadaÃ¢â‚¬â„¢s average inflation rate hit +2.9% (the biggest increase in eight years, 2010 was +1.8%).
- CAD: Wholesale trade recorded a surprise drop in November (-0.4% to +$48.4b). The market had been expecting a+0.5% gain.
- USD: Existing home sales came in a little lower than expected. Sales rose +5% in December to annualized pace of + 4.61 m units. Housing inventory fell to a 6.2 months supply.