2016 Closes With a Whimper

Weekly Report - 01/01/2017

Week of Below Average Market Volumes Saw Increased Volatility and New Highs in Equities


US equities reached new intraday highs and closes in some cases as the post-Christmas market hangover gave way to increasingly low volumes and in some cases heightened volatility in equities, commodities, and currencies.  The biggest evidence of thin trade and higher volatility came from the US dollar’s flash crash lower against most major peers in the early Friday hours before the close of markets.

Last Week

Financial markets faced very limited market data last week, contributing to the downturn in turnover and liquidity as investors squared their portfolios for year-end reporting requirements.  With investors largely refraining from taking extraordinary levels of risk, certain assets remained stuck in narrow ranges while others faced increased volatility thanks to less activity.  One of the biggest moves was the crash in the US dollar on Friday which saw the US currency falter against all major peers before recovering modestly, sending gold prices back above $1150 per troy ounce.  Oil prices exhibited fairly normal volatility, whipsawing after crude oil inventories surprising rose for another week despite expectations of a drawdown.  An uptick in natural gas seasonal demand thanks to colder than average temperatures across the United States sent the commodity to multi-year highs before pulling back modestly late in the week.  Meanwhile, equity futures continued their grind higher until the middle of the week, with European indices closing out 2016 near 1-year highs.  Although Nasdaq futures touched a new record, American equity benchmarks slid from Wednesday onwards through the end of the week as dollar profit-taking and risk aversion prevailed.


The Week Ahead

Although trading volumes are expected to gradually improve throughout the week ahead, most markets aside from currencies will be closed for trading on Monday until US futures markets open up late in the session.  The major data set for release throughout the course of the week is primarily focused on manufacturing and services activity from across the globe.  Kicking off the week is data from China pertaining to the Caixin manufacturing purchasing managers’ index which is expected to cool slightly but remain in expansionary territory.  This will be followed by data from Italy, France, Germany, and the aggregate Euro Area on Tuesday, with figures forecast to stay on hold at current levels above the growth threshold.  The United States and United Kingdom will also report similar figures before releasing data related to services PMIs.  The main event of the week will be US unemployment, with nonfarm payrolls due on Friday.  The jobless rate is expected to rise from the current 4.60% to 4.70%, potentially dragging on dollar performance.  Labor data from Canada is also due on Friday, with joblessness also forecast to climb from 6.80% to 6.90%.


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