So an extra dose of medicine from the Fed on Wednesday helps smother global market volatility further into the yearend — even though naming an explicit 6.5% unemployment rate could well send Treasury bond volatility soaring as the current 7.7% rate likely approaches that level in 2014 just as the Fed low-rate pledge expires. Not a story for early next year maybe, but…
More nose-against-the-windshield, the busy end to this week – with the EU Summit today and December’s flash PMIs tomorrow – makes it difficult to clear the decks yet for yearend — at least not as much as market pricing and volumes would suggest. Moves to some form of EU banking union are already in the mix from Brussels, however, so another plus at the margins perhaps.
And looking back over the past week — who’d have thought we could still be surprised by an upset in Italian politics? It was the only real significant pre-Fed news of the past week and maybe packed more of a initial punch that it warranted as a result. But for all the interest in Monti stepping aside and Silvio’s attempt to return, there was no really big shift in picture already in front of investors. Ok, so the election is now likely in February not March/April and no one wants to write off Berlusconi completely. But he’s still more than 10 points adrift in polls and Monti himself may well stand for PM in the election too. In short, it adds some political risk at the edges, but if you were happy to hold or buy more Italian bonds before this (still a big ‘if’), then all that really changed for investors is they got a better yield at this week’s relatively successful auction.
So, into next week then? There’s plenty of “events” still in the diary – Japan’s election at the weekend, the fiscal cliff deadline on Dec 21, key US housing reports and the UK government’s response to its commission on the future of banking etc. But thin-trading spikes aside, it’s increasingly unlikely investors’ broadly positive tilt going into 2013 will be derailed at this stage. Never say never, but the short-lived reaction to the Italian hiccup says a lot in itself. World stocks are less than one percent from the year’s peaks set in the summer and it would be brave to bet against them setting 2012 highs in the final fortnight given the relative bullishness about next year.
Egypt referendum on draft constitution Sat
Japanese general elections Sun
Venezuela state elections Sun
US Treasury 2/5/7 yr auctions Mon/Tues/Weds
China Nov house prices Tues
UK Nov inflation Tues
Sweden/Hungary/Turkey rate decision Tues
SKorea presidential elections Weds
Japan Nov trade data Weds
German Dec Ifo Weds
UK govt response to Independent Commission on Banking Weds
BoE mins Weds
Norway/Czech rate decision Weds
US Nov housing starts/permits Weds
UK Nov retail sales Thurs
EZ Dec consumer confidence Thurs
US Nov existing home sales/Dec Philly Fed index Thurs
Italy Dec consumer confidence Fri
SNB quarterly monetary policy report Fri