Weekly Fundamentals - 12 December 2015

 
THE WEEK AHEAD FUNDAMENTALLY - KEY DATA TO WATCH OUT FOR
 
 
Last week we stated that:”this week will be all about what the FED does next week. Will it raise or not?
The argument over the last few years has been that low rates make risk assets attractive and safe haven assets such as gold and silver unattractive. This has been correct. Higher rates, if they happen should have an opposite effect. We therefore anticipate continued strength in the metals.
Follow the gold:silver ratio carefully. It now stands slightly under 75. It is now at an extreme and silver should begin to outperform going forward.”
This is the big week when on Wednesday we finally have the FED decision. Will they raise rates for the first time in nearly 10 years? What will the effect be on risk?
 
USD: USD action starts on Tuesday with the release of both CPI and Core CPI. The former is expected to decline to 0.0% from 0.2% and the latter expected unchanged at 0.2%.
The big day is Wednesday. We start with Building permits expected to be the same as last month's 1.16Mn. We then have the FOMC Economic Projections followed by the FOMC Statement, then the long awaited decision on the FED Funds Rate which is expected to rise from 0.25% to 0.50% and finally the FOMC Press Conference. Markets will await with bated anticipation and volatility will be vastly heightened.
On Thursday we have the Fed manufacturing Index number which is expected to rise from 1.9 to 2.1 and the customary Unemployment Claims which is expected to fall from 282,000 to 271,000.
COT data shows that large commercials continued to increase their net short position slightly in the US$ Index from 59,137 to 61,784. We therefore remain SLIGHTLY BEARISH.
 
EURO: Euro activity starts on Monday when the ECB President speaks.
On Wednesday we have both French and German manufacturing PMI numbers. the French figure is expected to remain unchanged at 50.6 whilst the German one is expected to fall slightly from 52.9 to 52.7.
On Thursday we see the release of the German Business Climate number which is expected to rise slightly from 109.0 to 109.2.
COT data for the Euro shows that large commercials decreased their net long position from 224,522 to 197,108. We remain BULLISH.
 
GBP: On Tuesday we have CPI expected to climb from -0.1% to 0.1%.
Wednesday sees the release of the Average Earnings Index which is expected to fall from 3.0% to 2.5% and the Claimant Count Change which is thought to fall from 33,000 to 9,000.
On Thursday we have Retail sales which is expected to climb from -0.6% to 0.6%.
Large commercials slightly decreased their net long position from 49,040 to 44,590. We therefore remain BULLISH.

YEN: On Sunday we have both the Manufacturing and Non-Manufacturing Index. The former is expected to fall from 12 to 11 and the latter from 25 to 23.
On Thursday we have the Monetary Policy Statement and on Friday the BOJ Press Conference.
COT data shows that large commercials again reduced their net long position from 104,921 to 98,557. We remain BULLISH.

AUD: Only two items for the AUD.
On Monday we have the Monetary Policy Meeting Minutes and on Tuesday we have the Mid-Year Economic and Fiscal Outlook.
COT data shows that large commercials reduced their net long position for the third week in a row from 59,494 to 44,118. We therefore remain NEAUTRAL.

CNY: There is no data this week for the CNY.
There is no COT data for the CNY.
 
COT DATA OF NOTE:
S&P500: Last week large commercials slightly reduced their net long position from 129,151 to 110,954. As long as large commercials remain net long to have to err on the side of being bullish. We therefore remain SLIGHTLY BULLISH.
GOLD: Large commercials slightly increased their net short position from 11,983 to 13,997. This continues to be very close to being the smallest net short position since the only time this century they were net long on 11/12/01, which was nearly 14 years ago. We therefore remain SUPER BULLISH.
SILVER: Last week saw large commercials very slightly increase their net short position from 29,821 to 31,027. We therefore remain SLIGHTLY BULLISH.
The gold:silver ratio widened from just under 75 to just over 77 indicating continued silver underperformance.

THOUGHTS FOR NEXT WEEK
Only one day matters this week and that is Wednesday. This week may be the first time in nearly 520 weeks when the FED may hike interest rates.
What will the effect be if they do? Will the market perceive this as a positive as it means the economy is doing well and in the case the recent weakness in risk has already priced the hike in? Will risk therefore rally or continue to fall? What if rates are not hiked? Will the market perceive this as a negative as the economy is too weak even after all the stimuli thrown at it?
What affect will the decision have on the USD. Will a hike boost the USD Index and therefore USD denominated assets?
So many unknows. The only known is heightened volatility.
 
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