The European Central Bank meets tomorrow, and that is the main event of the week. The price action today is dominated by other central banks. The market is still struggling to find a new balance after the Swiss National Bank’s surprising move last week.
Homebuilders are becoming increasingly pessimistic, as stagnant wages and falling demand from investors is pinching the market.
The National Association of Home Builders saw its builder confidence index fall one point to 57, slightly below expectations, as recent improvements in the housing market cool off. While any number above 50 indicates that the market is still good, the decline also suggests that an acceleration of growth going into 2015 is less likely than previously expected.
While nothing excuses the terrorist killings in Paris, the French state can no longer turn a blind eye to the marginalization of Muslims. The French banlieues are becoming a breeding ground for jihadists.
Currency wars have been predicted for years. Outright monetary battles were last seen during the Great Depression of the 1930s, when governments competed to devalue their currencies to gain market advantage. But since the return to floating exchange rates in the 1970s, the risk of renewed competitive manipulation has hovered over the monetary system like a dark cloud.
The US dollar’s strength is a product of both the expected trajectory of Fed policy and the fact that ECB and BOJ are still in aggressive easing modes. Both sides of the equation are being driven home. The Wall Street Journal’s Hilsenrath, recognized to be well sourced at the Federal Reserve, reaffirms that it is on track to raise rates later this year. Next week, the FOMC will likely continue to recognize that it can be “patient”.
European stocks advanced for three days in a row as of Monday, as more investors expect the European Central Bank to announce a quantitative easing program that will expand the euro base and stop Eurozone deflation.
The Stoxx Europe 50 index rose 0.6% on Monday, while the Dax saw higher gains, rising over 1% at its highest point, although the index retreated slightly in afternoon trading.
In 2013, the Sino-US relations ended with concern over strategic mistrust. In 2014, bilateral relations were characterized by a sense of optimism. While bilateral trust may endure through the Obama era, challenges will ensue thereafter.
The renewed sense of strategic trust peaked in the U.N. climate talks in Lima, Peru, when President Obama and President Xi Jinping announced the new China-US climate change targets.
This will be an eventful week. There are three major central bank meetings: BOJ, BOC and ECB. The ECB is widely expected to announce a wider bond-buying program that will include sovereign bonds. January 25 Greece holds national elections in which Syriza is maintaining a small lead.
In an interview with CNBC late last week, Germany Finance Minister Steffen Kampeter dismissed growing concerns at investment banks, think tanks, government agencies, and central banks that deflation has become inevitable in Europe.
“This is not what economists and textbooks describe as a deflation spiral, this is a modest price development,” he said in a statement.
The investment climate has become more treacherous. Weak wage growth and disinflationary headwinds are making market participants question likelihood of a Fed rate hike around mid-year.
The Swiss National Bank’s jettisoning its prior strategy has thrown many investors off balance and less secure of their footholds. OPEC’s unwillingness to make room for a continued increase in US oil output has unleashed both powerful positive and negative forces.
