December decisions, what lies ahead.

A quick run through what I think will be the critical trading events in December. With all the noise in the markets, it’s easy to get disoriented but for me, given that crude oil prices are a reliable barometer for the health of the global economy and since it’s conceivable oil could trade in the ’40s the precipitous decline could negatively impact investor expectations across a wide berth of asset classes. So, while G-20 is important its unlikely to change US hardline trade policies any time soon significantly, so perhaps the most important  event in December could very well be the OPEC summit

Decembers decision, what lies ahead 

The importance of just about every tier of US economic data has taken on a substantial influence thanks to the Fed’s calculated dovish shift from FOMC guidance to data dependency. So, without what was thought to be the new norm of quarterly rate hikes to tether itself too, the USD now becomes hypersensitive to both external and domestic economic data releases.

But it’s external data that could come to the fore over recent signs that the global economic recovery is sputtering and could give cause for global central banks to adjust key monetary policy setting lower. Mainly if we get a nasty Brexit or even a sustained slowdown in China.

Ultimately, we could see the USD maintain its mantle as king of the hill

Hugely busy markets in December as  there are several branches  of event risk

G-20

G20 fallout will dominate Monday session. I still think it offers up a great photo shoot opportunity, but with both parties aware of what’s at stake, at minimum investors expect a verbal commitment to keep working through the issues. But reports were circulating that the two countries would continue trade talks in Washington  mid-December suggesting there is light at the end of Trump’s tariff tunnel

OPEC Summit

OPEC’s December 6 summit is a significant event for oil markets. Much ink has been spilled but oils fall from grace is merely a result of the fundamental laws of supply and demand, which brings my attention to a-bubblin’ crude? Oil that is. Black gold. Texas tea.

US oil production has maintained its meteoric rise, underscoring nervousness about excess supply that has tanked oil markets. US oil producers pumped an eye-watering 11.475m barrels per day and were 1.98m b/d higher than in September 2017

While not a new story it does underscore what we know, but one thing that is certain, the booming shale industry will be of significant interest to OPEC and allied producer when they meet this week. Hence the rumours flying on Friday that OPEC and friends will agree on 1.3 million barrel per day cut from October levels.

Central Banks 

On the monetary policy front, all G10 central banks aside for NZD meet this month, and the outlook appears quite dovish.

The most important meeting is, of course, the FED who is given the unenviable task of trying to adjust monetary policy while reducing the QE glucose drip the markets have been feeding off for the last decade. The US December rate hike is still a lock, so the focus should then shift to its approach to the balance sheet.

The ECB will also be on the watchlist as they move to start phasing out its easy-money policies against criticism from European lawmakers that it is moving too soon as eurozone economic growth slows. The problem facing the ECB is the opposite to the FED as the EU economy is sputtering badly.

Remaining G10 banks will likely fade to the background.

China

There is always an outsized focus on China, but the fallout from any of the key economic data events this month could see an acceleration of monetary policy and possibly more trade and capital markets reforms. Circle your calendars on the following November’s Caixin China manufacturing PMI (December 3, 1:45); Caixin Services/Composite PMI (December 5, 6:45); November CPI (. December 9, 1:30); November retail sales (December 13, 2:00); Manufacturing PMI for December (December 30, 1:00).

Europe and Brexit

Unlikely any de-escalation of European political risk, but the critical event is the big Brexit vote pencilled for December 11, but the headline risk roulette wheel will be on full motion between Dec 3 and December 24. But this never-ending saga is likely to rage on for months ahead

US politics

Trump’s Republican-led 115th Congress also ends January 5 meaning that the remaining Fed nominations of Goodfriend and Liang are going nowhere. With Democrats gearing up to take the House leadership, no doubt it’s going to get loud with Dems getting set to put some agenda in place that is unlikely to go anywhere, but it will be loud going nowhere.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes