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Daily Commentary 29/12/2014

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Greek election in focus Currencies were little changed from their Friday levels Monday morning as the year draws to a close.

SEK, which fell on Friday, recovered somewhat but was still below its Friday opening levels. Sweden cancelled its plans to hold a snap election in March. The ruling party, which has only a minority in the parliament, reached an agreement with some of the opposition parties that will allow it to pass a budget. The accord runs for seven years. However the agreement does not seem to have done very much to bolster the currency, which failed to regain even the ground that it lost on Friday. That makes me even more bearish on SEK.

NZD was the biggest gainer, with AUD not far behind. The region’s currencies were boosted after China’s central bank Sunday said it would change the definition of deposits for the purpose of calculating banks’ loan-to-deposit ratio in a way that would allow the banks to lend more money. A greater-than-expected decline in Chinese industrial profits in November had no impact on them. Nonetheless, I expect the commodity currencies to do poorly in 2015. Economic adjustments in China like this one are meant to cushion the country’s economic slowdown, not stop it. I expect the Chinese economy to slow as part of the country’s economic restructuring and for the commodity currencies, particularly AUD, to be hit as a result.

RUB fell as oil prices continued to drop. No rest for the weary.

Today’s calendar: Greek election

The main event today is the third and final round of the Greek Presidential election. This time, former European Commissioner Stavros Dimas needs only 180 votes to be elected, not 200 as before. But in the previous round of voting he only got 168 votes, so he is still not sure of getting elected. Voting is due to start at midday local time (1000 GMT) and the result is likely to be known around one hour later. If he is not elected, Parliament will be dissolved and there will be a general election in late January or early February, a few weeks before the country’s EUR 240bn bailout expires.

A Greek election would probably be a big risk event for EUR. Recent polls have shown that the left-wing opposition coalition SYRIZA, which opposes the terms of the bailout, has kept its lead over the ruling centre-right New Democracy party, but its lead has been narrowing. A poll on Saturday by the Alco institute showed SYRIZA leading New Democracy by 3.3 percentage points, a slightly narrower lead than in the previous poll. It put support for SYRIZA at 28.3% and for New Democracy, 25%. But even if PM Samaras’ New Democracy party does get the largest share of the vote, the situation is complicated by the weakness of other parties. New Democracy is currently in a coalition with the PASOK party, but the latter has serious internal problems and may split. That could prevent the creation of a stable coalition majority.

As for the economic indicators, the only noteworthy one out today is the US Dallas Fed manufacturing activity index for December.

Rest of the week Not that much on the calendar this week, as one might expect. On Tuesday, Eurozone’s M3 money supply for November is forecast to have slightly accelerated from October. This will push the 3-month moving average higher if the forecast is met. Despite the stimulus efforts from the ECB, money supply growth has failed to take off, adding pressure for further action. In the US, we get the S & P/Case-Shiller house price index for October and the Conference Board leading index for December.

On Wednesday, we get the US initial jobless claims for the week ended Dec.27. The Chicago purchasing manager index for December and pending home sales for November are also to be released. The Japanese market will be closed today as well as Thursday and Friday.

Thursday, New Year’s Day, while much of the world is on holiday, China’s official manufacturing PMI for December is expected to decline to 50.0, the threshold dividing expansion from contraction.

Friday is PMI day for the rest of the world. It starts with the manufacturing PMI figures for December from several European countries, including the UK, and the final figure for the Eurozone as a whole. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to have slightly increased. In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for December are also to be released.

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