1. Japan on Deck . . . the halls!
Markets reopen Monday night from the Christmas holiday and Japan is immediately in our crosshairs. Yes, the Bank of Japan met only last Thursday, and its policy statement did not deviate a bit from expectations. However, the Bank follows up their policy meetings immediately with Minutes and those are due out Monday at 5:50 pm CT. BoJ Governor Kuroda is also due to speak at 10:00 pm CT. What puts an even stronger emphasis on these Minutes Christmas night is that CPI along with Household Spending data is due just before at 5:30 pm. In their policy statement the Bank said that the economy is growing moderately, and inflation is rising though well below its target.
We have hammered home our belief that either inflation will rise in 2018 or the BoJ will come to terms with the law of diminishing returns. We have already heard from a handful of BoJ council members that they are ready to confront real growth which is coupled with lagging inflation by reducing bond purchases and tightening their ultra-loose monetary policy. On a technical basis, the Yen came off key trend line support on Thursday’s session and is set to rally though it just needs a minor catalyst. Monday night can lay tremendous ground work for the next two weeks, one that has seasonally been favorable for safe-haven assets.
2. Unfavorable Stock Trade
The S&P 500 has not notched a gain in the last week of the year for the last eight years. During that time, it has averaged a loss of 1.1% in that last week. Not only has key resistance at the 2694.50 level kept the market in check, it has failed to settle above the pivot at 2688.50-2690.25 for the last four sessions in a row. Ultimately, a subdued finish to last week is priming for a volatile week ahead.
3. Crypto sell-off
The CBOE Bitcoin contract finished last week down 32% from its high of 20,500 on Dec. 18. Price action traded to a low of 11,300 in a sharp crypto-wide selloff on Friday. Since breaking out above 11,500 on crypto exchanges ahead of the futures contract we have eyed this level as a critical support. Remember, there is tremendous volatility at the moment, but we believe this should prove to be a strong buy opportunity.
4. Euro vs. U.S. Dollar
The Euro quietly put in a solid week last week in the face of U.S. tax-reform. It gained as much as a penny and a half before failing against trend line resistance and finishing the week subdued. We remain long-term bullish the Euro and long-term bearish the Dollar. We have an exciting week ahead with data to set this trade up for the start of next year. U.S Consumer Confidence is due on Tuesday to start the week along with Case Shiller and Pending Home Sales is Wednesday. Thursday morning is the ECB Bulletin which includes an analysis of the current economic conditions. On Thursday from the U.S is Goods Trade Balance and Jobless Claims, which had a poor read last week. On Friday from Europe is CPI and import data from Germany.