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Market Briefing: Fright Before Christmas Stirs Creatures in FX Markets

CalendarDecember 20, 2022

Santa Claus might not come this year. The jolly old elf—known for putting gifts in the stockings of good little boys and girls across the financial markets each December—was shot down over Tokyo last night by a central banker wielding a monetary policy-guided surface-to-air missile. His condition is unknown at this time.

In a surprise decision, the Bank of Japan increased the upper limit for its ten-year government bond target from 0.25 percent to 0.5 percent, almost doubling effective interest rates in one of the world’s most important funding currencies. Governor Haruhiko Kuroda said the move was aimed at reducing dysfunction in bond markets - where a “kink” had emerged, with ten-year yields below both their shorter- and longer-term equivalents - but many market participants see it as a necessary precursor to an eventual shift away from ultra-low interest rates.

The yen is trading near a four-month high. Although Japanese investors had largely stopped buying US Treasuries in recent months, the move is expected to spur repatriation flows, squeeze speculative short-sellers, and crush yen-funded trades across a range of asset classes and geographies. Long-term bond yields are up across most developed-nation markets, the dollar is lower, and equity futures are pointing to further losses at this morning’s North American open as investors brace for more difficult funding conditions ahead.

Oil prices are holding steady as China’s reopening helps stabilize long-term demand expectations.

In less than half an hour, Statistics Canada is expected to report retail sales numbers for October that largely align with the previously-published 1.5-percent month-over-month initial estimate. November’s advance projection is also likely to remain strong as vehicle purchases run above trend and consumers ramp up holiday spending - but weakness could set in once the tinsel is down and the decorations are packed away. Rising rates and lagging income gains make it likely consumer consumption will suffer in the year ahead.

US housing starts are seen falling to an annualized 1.4 million in November from 1.425 million in the prior month. Yesterday’s data showed homebuilder sentiment hitting lows last seen in 2012 as interest rates climbed and activity levels slowed.




Upcoming Events


MXN Retail Sales, October

CAD    Retail Sales, October


USD Current Account Balance, Q4

CAD    Consumer Price Index, November

USD    Conference Board Consumer Confidence, December

USD    Department of Energy Weekly Crude Inventories


GBP Current Account Balance, Q5

MXN    Bi-Weekly Consumer Price Index

USD    Weekly Jobless Claims

CAD    Payroll Employment Change, October


USD Personal Consumption Expenditures, November

USD    Durable Goods Orders, November

CAD    Gross Domestic Product, October

USD    University of Michigan Consumer Sentiment, December, Final

USD    Baker Hughes Weekly Rig Count


Karl Schamotta

Karl Schamotta

Chief Market Strategist

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