Global Economics & Markets Research Summary (02 January 2018)
Markets Overview
Key Events: The first week of 2018 features a busy US data docket, including the December Labor report (5 Jan), US ISM manufacturing survey (3 Jan), and US ADP employment change (3 Jan). The markets are pricing in a very low probability of another Fed rate hike in the upcoming FOMC meeting.
Global Data Calendar: Most developed economies have a lighter data docket, with the Eurozone's preliminary CPI inflation for December (5 Jan) being the main focus. No major G7 central bank policy decisions are expected this week.
Market Openings: Japan and New Zealand will have extended New Year holidays, opening on 4 Jan. The Asian markets will see a series of PMI releases, including the Caixin China PMI, Nikkei PMIs for South Korea, Taiwan, Vietnam, Malaysia, Indonesia, and the Philippines, as well as India’s PMI.
Central Bank Outlook
ECB Statements: ECB Executive Board member Benoit Coeuré suggests the asset purchase program may be the last extension, while Yves Mersch emphasizes the need for a step-by-step approach to monetary policy normalization.
Global Policy Trends: The ECB is prepared to adjust its policies depending on inflation outcomes, and the UK banks closed 802 branch offices in 2017, with further closures planned.
FX Market
USD Performance: The USD declined by nearly 10% in 2017 and remained weak on the last trading day. The USD/SGD closed at 1.3360, with the SGD NEER expected to trade between 1.0% and 1.5% above the midpoint.
Other Currencies: The euro edged up against the dollar following higher-than-expected German CPI, while the yen gained strength. The AUD and NZD also showed marginal appreciation against the USD.
Equities
US Market: The US stock market ended 2017 lower on the last trading day, with the DJIA down 0.48%, S&P 500 down 0.52%, and Nasdaq down 0.67%. Despite this, all indices had strong yearly gains.
Asian Markets: Asian equities closed higher on the last day of 2017, with the Hang Seng, Shanghai Composite, TAIEX, and KOSPI posting positive returns. The Nikkei 225 was the only major index to close slightly lower.
US Treasuries
Bond Market: The US bond market saw yields fall slightly on the last trading day of 2017, with the 10-year yield ending at 2.405%. The year was the calmest for the 10-year Treasury note in nearly 40 years.
Auctions: The US Treasury will conduct T-bill auctions on 2 Jan, including 3-month, 6-month, 4-week, and 52-week issues.
Commodities
Oil Prices: Crude oil prices rose on the last day of 2017, with the US Nymex WTI closing at $60.42 and London Brent at $66.87. Oil prices ended the year above $60, not seen in over two years.
Gold: Gold prices rose due to the weaker USD, closing at $1,309.30 on 29 Dec 2017, with a yearly gain of 13.7%.
Economic News & Data
Singapore GDP: Singapore's 4Q 2017 GDP grew at 3.1% y/y, driven by the manufacturing sector. The full year 2017 GDP growth is estimated at 3.5%.
China PMI: China's manufacturing PMI for December fell to 51.6, slightly below November's 51.8, but still in line with analyst expectations.
South Korea: South Korea's December inflation rose to 1.5% y/y, while exports grew at 8.9% y/y, lower than the previous month's revised rate of 9.5% y/y.
Iran Protests: Protests erupted in Iran, initially focused on economic issues, but quickly expanded to include political and religious targets.
