Prime Minister Shinzo Abe’s ruling coalition enjoyed a sweeping victory in Sunday’s snap elections. The win gives him and the Liberal Democratic Party with an assurance of 317 seats out of the 475-member lower house and controlling a super-majority in the house. Despite the low voter turnout, Abe believes the coalition win is due to the public’s support. He commented that, “I believe the public approved of two years of our 'Abenomics' policies.” Abe vows to continue with his plan to rid the country of deflation. “I promise to make Japan a country that can shine again at the centre of the world,” he pronounced.
Following four central bank announcements last week, the Swiss National Bank and Reserve Bank of New Zealand maintained their rates this week. RBNZ kept its Official Cash Rate at 3.50 percent, while the SNB decided to leave its Libor Rate at less than 0.25 percent.
In the United States, Retail Sales grew to 0.7 percent in November as shoppers enjoyed amid a growing job market and low gas prices. Core reading also edged up 0.5 percent. Meanwhile, Jobless Claims for the prior week also came in better than expected, 294,000 versus its 299,000 forecast. Preliminary University of Michigan Consumer Sentiment rose to 93.8, an eighth year-high this December for the same reasons that boosted Retail Sales.
Gold climbed further this week but the last three days’ decline erased some of the gains. Bulls need to secure their control of $1,200 so that price could move higher further going forward. Initial resistance is at $1,250 ahead of $1,300-30.
Oil continued its drop this week. Price declined $9 to a $56 low, for the first time since May 2009. Major support in the coming months is the $30-$35 area. Again, it is sensible not to fight the strong momentum.
EURUSD produced a 250-pip reversal this week after reaching a 1.2246 low on Monday. Price needs a little more push north through 1.2600 to get a better traction for this bounce. A move down through 1.2400 could negate the bullish effort, though.
Finally, we saw the first bearish weekly close after seven straight bullish ones. The week’s range was 440 pips and price is now back in the 117-118 area. I expect 118 would be a critical battle area going forward.
GBPUSD has a milder bounce higher (215 pips) compared to EURUSD, but nevertheless this is advantageous for the ailing bulls. Cable has to pass through 1.5850 to gain higher ground in the coming days and weeks. 1.5600 should hold and bulls will be safe, at least in the short term.
The Week Ahead
With 2014 drawing to a close, this will be the final busy week for December.
Monday begins with Japan’s Tankan indices; Australia’s New Motor Vehicle Sales and Mid-Year Economic and Fiscal Outlook; UK CBI Industrial Order Expectations; Bundesbank Monthly Report ; Switzerland’s PPI; US Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production, and NAHB Housing Market Index.
On Tuesday, there will be Australia’s Monetary Policy Meeting Minutes; China’s HSBC Flash Manufacturing PMI; UK CPI, RPI, PPI, HPI, Bank Stress Test Results, BOE Financial Stability Report, and FPC Statement; Flash Manufacturing PMI and Flash Services PMI for France, Germany, and the Eurozone; Germany’s ZEW Economic Sentiment; Canada’s Foreign Securities Purchases and Manufacturing Sales; and US Housing Starts and Flash Manufacturing PMI.
Wednesday will start early with New Zealand’s Current Account. Japan’s Trade Balance will come next, then UK Claimant Count Change, Average Earnings Index, Jobless Rate, and MPC Asset Purchase Facility and Official Bank Rate Votes; Switzerland’s ZEW Economic Expectations; US CPI, Current Account, FOMC Economic Projections, FOMC Statement, and US Federal Funds Rate; and Canada Wholesale Sales.
Thursday will have New Zealand’s GDP; Switzerland’s Trade Balance; Germany’s Ifo Business Climate; UK Retail Sales; EU Economic Summit; US Jobless Claims and Philly Fed Manufacturing Index.
Friday will cap the week with BOJ’s Monetary Policy Statement and Press Conference; Germany’s PPI and Gfk Consumer Climate; UK CBI Realized Sales and Public Sector Net Borrowing; and Canada CPI and Retail Sales.