Category: Uncategorized

The dollar index (DXY00) today posted a new 2.75-month low but then recovered and is little changed.  The dollar continues to trade on a weak note despite Tuesday’s stronger-than-expected US GDP report of +4.3% and the reduced odds for Fed easing.  The markets on Tuesday reduced the odds for a -25 bp rate cut at the next FOMC meeting to 13% from 20%.

In a report released today, US weekly initial unemployment claims fell by -10,000 to 214,000 in the week ended Dec 20, showing a stronger labor market than expectations of 224,000. Continuing claims rose by +38,000 to 1.923 million from the previous week’s revised 1.885 million (preliminary 1.897 million), which showed a weaker labor market than expectations of 1.900 million. 

China’s central bank today issued a cautious statement after its quarterly monetary policy meeting. The PBOC indicated that it is focused on long-term stability and suggested that it will not engage in sudden interest rate cuts to address problems such as property market weakness, weak domestic demand, and the trade war with the US.

The dollar continues to see underlying weakness as the FOMC is expected to cut interest rates by about -50 bp in 2026, while the BOJ is expected to raise rates by another +25 bp in 2026, and the ECB is expected to leave rates unchanged in 2026. 

The dollar is also under pressure as the Fed boosts liquidity in the financial system, having begun purchasing $40 billion a month in T-bills in mid-December.  The dollar is also being undercut by concerns that President Trump intends to appoint a dovish Fed Chair, which would be bearish for the dollar.  Mr. Trump recently said that he will announce his selection for the new Fed Chair in early 2026.  Bloomberg reported that National Economic Council Director Kevin Hassett is the most likely choice as the next Fed Chair, seen by markets as the most dovish candidate.

EUR/USD (^EURUSD) is down -0.14%.  The euro has seen support this week from ECB member comments, indicating satisfaction with the current outlook for no interest rate cuts.

ECB Governing Council member Yannis Stournaras said Tuesday that the ECB is in a “good place” but needs to remain flexible to move policy in either direction.  He said, “If we happen to be in a better or weaker position than expected, we will take appropriate action.”

ECB Governing Council member Gediminas Simkus on Monday indicated satisfaction with the current level of interest rates, saying, “We have inflation – headline and core – both now and in the near future, and mid-term, close to the 2% level.  The interest rate is seen by many as at a neutral level. Economic growth has improved though remains sluggish.”

Meanwhile, ECB Governing Council member Peter Kazimir said on Monday that the ECB is comfortable with current rates but stands ready to act if conditions change.  He said the current period of on-target inflation and steady economic expansion is “rather fragile” and that risks remain from tariffs and the Russia-Ukraine war.

Swaps are pricing in a 3% chance of a +25 bp rate hike by the ECB at the next policy meeting on February 5.

USD/JPY (^USDJPY) is down -0.28%.  The yen has rallied this week after Finance Minister Satsuki Katayama said Japan has a “free hand” to intervene against currency moves that are out of line with fundamentals, a reference to the yen’s weakness last Friday after the BOJ’s rate hike.

The yen has underlying support from last Friday’s +25 bp rate hike by the Bank of Japan.  The yen also has support from interest rate differentials, with the 10-year JGB yield posting a 26-year high of 2.073% on Monday. 

The markets are discounting a 0% chance of a BOJ rate hike at the next meeting on January 23.

February COMEX gold (GCG26) today is down -12.5 (-0.28%), and March COMEX silver (SIH26) is down -0.082 (-0.12%). 

Gold and silver today both posted new all-time highs on the nearest-futures charts but then fell back on some long liquidation pressure after this month’s sharp rallies.  Precious metals prices were undercut by Tuesday’s +4.3% increase in US Q3 real GDP, which caused the markets to reduce the odds for a Fed rate cut at the next meeting to 13% from 20%.

Bullish underlying factors for precious metals include the FOMC’s recent announcement of a $40 billion per month liquidity injection into the US financial system.  Precious metals prices are also being boosted by geopolitical risks, as the US is looking to seize two more Venezuelan-linked oil tankers. Also, Ukraine late last week hit an oil tanker from Russia’s shadow fleet in the Mediterranean Sea for the first time.

Precious metals have safe-haven support tied to uncertainty over US tariffs and geopolitical risks in Ukraine, the Middle East, and Venezuela.  In addition, precious metals are supported by concerns that the Fed will pursue an easier monetary policy in 2026 as President Trump intends to appoint a dovish Fed Chair. 

Strong central bank demand for gold is supportive of prices, following the recent news that bullion held in China’s PBOC reserves rose by +30,000 ounces to 74.1 million troy ounces in November, the thirteenth consecutive month the PBOC has boosted its gold reserves. Also, the World Gold Council recently reported that global central banks purchased 220 MT of gold in Q3, up +28% from Q2. 

Fund demand for precious metals remains strong, with long holdings in silver ETFs rising to a 3.5-year high on Tuesday.  Holdings in gold ETFs have recovered in the past two months and are just mildly below the 3.25-year high posted in October.

Gold ⁠broke above $4,500 an ounce for the first time on Wednesday while silver and platinum also marked new record highs, ‍as safe-haven demand and ‍expectations of further U.S. rate ‍cuts next year fuelled speculative interest in precious metals.

Spot gold was up 0.2% at $4,494.49 per ounce, after marking a record high of $4,525.19 earlier in the session. U.S. gold futures for ‌February ‌delivery climbed 0.4% to $4,523.10.

Silver hit an all-time high of $72.70 ​and was last up 1.3% at $72.32 an ounce, while platinum peaked at $2,377.50 before paring gains to stand 1.6% higher at $2,312.70.

Palladium was down 1.5% at $1,830.37 an ounce, retreating after touching its highest in three years.

“The lack of ⁠any bearish factors and strong momentum, all backed by solid fundamentals, which include continued central bank buying, a falling U.S. dollar and some level of haven demand,” is supporting gold, said Fawad Razaqzada, market analyst at City Index and FOREX.com.

“Other base metals like copper have been climbing, which is providing support for the whole commodities complex in terms of metals.” Gold has risen more than 70% this year, its biggest annual gain since 1979, as investors flock to safe-haven assets amid geopolitical tensions and with expectations that the U.S. Federal Reserve will continue to ease monetary policy. U.S. President Donald Trump said on Tuesday he wants the next Fed chairman to lower interest rates if markets are doing well.

Non-yielding assets such as gold tend to do well in ‍a low-interest-rate environment, with traders currently pricing in two rate cuts next year.

Silver has surged ‌more than 150% year-to-date, outpacing gold on strong investment demand, its inclusion ⁠on the U.S. critical minerals list and rising industrial use.

“The risk of a major drop in the gold price would seem largely linked to a ‍slowing of outright gold buying, such as by emerging market central banks,” analysts at Societe Generale said in a note. “Barring such an event, investor positions suggest that the extraordinary surge in gold prices is likely to continue, supporting our Commodities strategists’ forecast ($5,000/oz by end-2026).”

Platinum and palladium, primarily used in automotive catalytic converters to reduce emissions, are up ⁠about 160% and more than 100%, respectively, year-to-date, ‌on tight mine supply, tariff uncertainty, and a rotation from gold investment demand.

Oil prices rose for a sixth day on Wednesday, ​supported by robust U.S. economic growth and ‍the risk of supply disruptions from Venezuela and Russia, though prices were on course for their steepest annual decline since 2020.

Brent crude futures were up 13 cents, ‍or 0.2 per cent, ​to US$62.51 a barrel at 9:25 a.m. ET, while U.S. West Texas Intermediate crude was up 22 cents, or 0.4 per cent, at US$58.60.

Both contracts have gained about 6 per cent since December 16, when they plunged to near five-year lows.

“What we’ve seen over the past week is a combination ⁠of position squaring in thin markets, after last week’s breakdown failed to gain traction, coupled with heightened geopolitical tensions, including the U.S. blockade on Venezuela and supported by last night’s robust GDP data,” IG analyst Tony Sycamore said.

U.S. data showed the world’s largest economy ‌grew at its fastest ‍pace in two years in the third quarter, fueled by robust consumer ‍spending and a sharp rebound in exports.

Still, Brent ‌and WTI prices are on track to drop about 16 per cent ⁠and 18 per cent, respectively, this year – their steepest declines since 2020 when the COVID pandemic hit ​oil demand – as supply is expected to outpace demand next year.

On the supply side, disruptions to Venezuelan exports have been the most significant factor pushing up oil prices, while Russia’s and Ukraine’s continued attacks on each other’s energy infrastructure have also supported the market, ​Haitong Futures said in a report.

More than a dozen loaded vessels are in Venezuela waiting for new directions from their owners after the U.S. seized the supertanker Skipper earlier this month and targeted two additional vessels over the weekend.

Additionally, oil shipments from Kazakhstan via the Caspian Pipeline Consortium are set to drop by a third in December ⁠to the lowest since October 2024 after a Ukrainian drone attack damaged facilities ⁠at the main CPC export terminal, two market sources said on Wednesday.

U.S. crude inventories rose by 2.39 ‌million barrels last week, while gasoline stocks increased by 1.09 million barrels and distillate inventories rose by 685,000 barrels, market sources said, citing American Petroleum Institute figures on Tuesday.

The U.S. Energy Information Administration is due to release official inventory data on Monday, later than usual due to ‌the Christmas holiday.

The U.S. economy grew at a faster pace than expected in the third quarter, according to the Commerce Department’s estimate.

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The Bureau of Economic Analysis (BEA) on Tuesday released its initial estimate of third-quarter GDP, which showed the economy grew at an annualized rate of 4.3% in the three-month period including July, August and September.

That figure topped the expectations of economists polled by LSEG, who had estimated 3.3% GDP growth in the third quarter. 

The report also found that real GDP rose at an annualized rate of 3.8% in the second quarter. That followed a GDP contraction of 0.6% in the first quarter. Taken together, those three readings indicate the U.S. economy grew at a 2.5% annualized rate through the first three quarters of 2025.

INFLATION REMAINED ELEVATED IN NOVEMBER AS FED CONSIDERS PAUSING INTEREST RATE CUTS

Third quarter GDP was boosted by an acceleration in consumer spending. (Eduardo Munoz/Reuters)

The BEA said that the rise in real GDP in the third quarter reflected increases in consumer spending, exports and government spending that were partly offset by a decrease in investment. Imports also declined in the third quarter.

“Compared to the second quarter, the acceleration in real GDP in the third quarter reflected a smaller decrease in investment, an acceleration in consumer spending, and upturns in exports and government spending. Imports decreased less in the third quarter,” the BEA said.

US ADDED 64K JOBS IN NOVEMBER AFTER LOSING 105K IN OCTOBER, DELAYED REPORT SHOWS

Treasury Secretary Bessent has said the U.S. economy will hit 3% GDP growth this year. (FOX Business)

The report noted that real final sales to private domestic purchasers – which is the sum of consumer spending and gross private fixed investment – rose 3% in the third quarter, slightly faster than the increase of 2.9% in the second quarter.

The price index for gross domestic purchases rose 3.4% in the third quarter, a notable increase from the 2% increase in the second quarter. The personal consumption expenditures (PCE) index – an inflation gauge that is also measured in a standalone report that can yield different readings – rose 2.8% in the third quarter, compared with an increase of 2.1% in the prior quarter.

POWELL ACKNOWLEDGES LABOR MARKET SLOWDOWN BUT REJECTS FEARS OF STEEP DECLINE

President Donald Trump’s tariffs disrupted international trade earlier this year, which pushed imports higher in the first quarter, which was followed by a decline in the second quarter. (Brendan Smialowski/AFP via Getty Images)

The third-quarter figure is expected to be revised with the release of a subsequent estimate. Typically, the BEA releases an initial estimate, a second estimate and a third estimate that serves as the final revision.

The government shutdown delayed the release of the initial third-quarter estimate, which was due at the end of October. It also affected the release of the second estimate, which was originally scheduled for Nov. 26.

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The BEA said that its initial estimate replaces the advance and second estimates, meaning there will just be one additional third-quarter GDP release. Currently, the BEA’s schedule shows the final third-quarter GDP release on Jan. 22.

While Canada’s economy likely rebounded slightly last month after a widespread contraction in October, the fourth quarter is shaping up to be a weak one as tariff-hit industries weigh on growth.

Industry-based gross domestic product expanded 0.1 per cent in November, according to a preliminary estimate from Statistics Canada, coming on the heels of a 0.3-per-cent decline the month before.

Together, the two months of data suggest that the Canadian economy “has some work cut out to avoid another negative print for the final quarter of the year,” Robert Kavcic, senior economist at BMO Capital Markets, said in a note to clients. “That will close out a very choppy year for Canadian growth in still-choppy fashion.”

While that contraction in October was expected, the breadth of the decline still caught the attention of economists.

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Output fell in many sectors, with manufacturing, which contracted 1.5 per cent, contributing the most to the month-over-month decline.

Within manufacturing, most sectors were flat or down, with the biggest declines coming in trade-dependent industries such as electrical equipment, machinery and wood-product manufacturing.

The latter has been hit particularly hard, with output from wood-product manufacturers shrinking 7.3 per cent in October.

Canada’s softwood lumber sector has sounded the alarm that producers face enormous challenges during a period of high U.S. import taxes, warning of widespread effects on the communities and employees that depend on mills.

U.S. import taxes on softwood currently total 45.16 per cent on most Canadian producers, including anti-dumping and countervailing duties of 35.16 per cent and new tariffs of 10 per cent. The duty rates were 14.4 per cent previously.

U.S. President Donald Trump announced the tariffs on lumber and other wood products in late September against Canada and other countries, effective Oct. 14. He cited Section 232 of the U.S. Trade Expansion Act, which allows him to invoke national-security concerns to impose tariffs.

Education services also added to the monthly output drop in October, but that was largely owing to the teachers’ strike in Alberta.

The monthly GDP numbers paint a picture of an economy steadily losing steam. Compared with a year ago, real output in October grew just 0.4 per cent, Mr. Kavcic noted, the slowest pace since the pandemic.

Even so, Canada has shown more resilience this year than many economists expected. In the third quarter, covering July to September, Canada’s real expenditure-based GDP came in at a surprisingly strong annualized rate of 2.6 per cent.

The same goes for the U.S. economy, which beat expectations to grow by 4.3 per cent in the third quarter, the biggest gain in two years, new numbers released Tuesday show.

Households were a big driver of that growth, despite tariffs raising the prices of some goods, with U.S. consumption climbing at a 3.5-per-cent annualized rate in the quarter.

“Even as consumption take the reins back from investment, the economy maintains considerable momentum,” Paul Ashworth, chief North America economist at Capital Economics, said in a note to clients.

However, growth in the U.S. is also expected to slow in the fourth quarter because of the 43-day government shutdown.

It’s unclear yet how the latest data will sway central bank interest-rate decisions in either country.

The Bank of Canada held its benchmark policy rate at 2.25 per cent earlier this month, with Governor Tiff ‌Macklem citing the country’s resilience to U.S. tariffs and an inflation rate close to the bank’s 2-per-cent target.

Strong job growth in Canada has been a marker of that resilience. Last month employers added 54,000 new jobs, which sent the unemployment rate down 0.4 percentage points to 6.5 per cent. It was the third consecutive month of employment gains.

Still, it’s unclear how long Canada’s job market resilience can hold. The “unimpressive rebound” in November’s monthly GDP stands in contrast with a robust jobs report for that month, “suggesting that the labour market data may weaken again ahead,” Andrew Grantham, a senior economist with CIBC Capital Markets, said in a note to clients.

Statistics Canada says total manufacturing sales fell 1 per cent to $71.5-billion in October.

The agency says sales were down in 11 of the 21 subsectors it tracks as sales of chemical products fell 6 per cent.

Meanwhile, sales in the wood product subsector fell 9 per cent as wood product manufacturing in Canada were affected by U.S. tariffs.

Transportation equipment subsector sales dropped 2.3 per cent in October as the production of aerospace product and parts industry group posted the largest decrease at 6.3 per cent.

The motor vehicle industry group, which is also included in the transportation equipment subsector, saw sales fall 2 per cent.

In real terms, Statistics Canada says overall manufacturing sales fell 1.5 per cent in October.

Canada’s annual inflation rate was 2.2 per cent in November, unchanged from the previous month, driven primarily by an increase in food prices which rose at their fastest pace in more than two years, Statistics Canada said on Monday.

A year-on-year drop in the costs of gasoline and shelter partially offset the rise in food prices, the statistics agency said.

It was the first month since March that core measures of inflation, which strip out volatile items, came in below 3 per cent, the upper end of the Bank of Canada’s control range.

Analysts polled by Reuters had forecast annual inflation of 2.3 per cent.

November’s monthly inflation matched analysts’ estimates of 0.1 per cent, down from 0.2 per cent in October, Statscan said.

Canada’s annual inflation has been subdued since April due to the removal of a carbon levy on the sale of gasoline. This has kept the price of the fuel low on a year-on-year basis, helping contain overall inflation.

Statscan’s data showed that the price of gasoline was up 1.8 per cent in November when compared with October, but on an annual basis it was 7.8-per-cent lower.

Without the effect of gasoline, November’s CPI was 2.6 per cent.

Food prices continued to rise, with economists pointing to them as one of the most significant drivers of inflation, which has proven sticky despite big cuts in interest rates by the central bank.

Food prices overall rose by 4.2 per cent on a yearly basis in November, the biggest increase since December 2023, spurred by a 4.7-per-cent rise in grocery prices and a 3.3-per-cent increase in the cost of food purchased from restaurants, Statscan said.

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Adverse weather conditions in growing regions and President Donald Trump’s import tariffs are considered to be driving up food prices, Statscan said.

The Bank of Canada’s preferred measures of core inflation – CPI-median and CPI-trim – had hovered around 3 per cent since April when Trump’s tariffs started to take effect.

CPI-median, the centermost component of the CPI basket, edged down to 2.8 per cent in November from 3 per cent in the prior month. CPI-trim, which excludes the most extreme price changes, was also at 2.8 per cent last month from 3 per cent in October.

The Canadian dollar firmed slightly after the data, trading up 0.07 per cent to 1.3761 to the U.S. dollar, or 72.67 U.S. cents. Yields on Canada’s two-year government bonds were down 2.3 basis points at 2.486 per cent.

Monday December 15

China retail sales, industrial production and fixed asset investment

Euro zone industrial production

(5 a.m. ET) Canada’s existing home sales and average prices for November. Estimates are year-over-year declines of 11.0 per cent and 2.5 per cent, respectively.

(5 a.m. ET) Canada’s MLS Home Price Index for November. Estimate is a year-over-year drop of 3.5 per cent.

(8:15 a.m. ET) Canadian housing starts for November. Estimate is an annualized rate rise of 11.7 per cent.

(8:30 a.m. ET) Canadian CPI for November. The Street expects gains of 0.1 per cent from October and 2.3 per cent year-over-year.

(8:30 a.m. ET) Canada’s manufacturing sales and new orders for October. Estimates are month-over-month declines of 1.1 per cent and 1.5 per cent, respectively.

(8:30 a.m. ET) U.S. Empire State Manufacturing Survey for December.

(10 a.m. ET) U.S. NAHB Housing Market Index for December.

Earnings include: Mainstreet Equity Corp.

–

Tuesday December 16

China PMI

Euro zone PMI and trade surplus

(8:30 a.m. ET) U.S. nonfarm payrolls for November. The Street expects an increase of 50,000 from October with the unemployment rate rising 0.1 per cent from the last reading of 4.4 per cent in September and average hourly wages up 3.6 per cent year-over-year. The data from October will also be released following the government shutdown.

(8:30 a.m. ET) U.S. retail sales for October. Consensus is a rise of 0.2 per cent month-over-month.

(8:30 a.m. ET) U.S. housing starts for November.

(8:20 a.m. ET) U.S. building permits for November.

(9:45 a.m. ET) U.S. S&P Global PMIs for December.

(10 a.m. ET) U.S. business inventories for September.

(12:45 p.m. ET) Bank of Canada Governor Tiff Macklem speaks in Montreal (with press conference to follow)

Earnings include: Lennar Corp.; OrganiGram Holdings Inc.

–

Wednesday December 17

Japan trade balance and core machine orders

Euro zone CPI and labour costs

Germany business sentiment

(8:30 a.m. ET) Canada’s international securities transactions for October.

Earnings include: Asante Gold Corp.; General Mills Inc.; Micron Technology Inc.; Transat AT Inc.

–

Thursday December 18

Bank of Japan monetary policy meeting (through Friday)

Bank of England monetary policy meeting

ECB monetary policy meeting

(7 a.m. ET) Canada’s CFIB Business Barometer for December.

(8:30 a.m. ET) Canada’s job vacancy rate for October.

(8:30 a.m. ET) U.S. CPI for November. The Street expects a rise of 0.3 per cent from October and up 3.1 per cent year-over-year.

(8:30 a.m. ET) U.S. initial jobless claims for week of Dec. 13. Estimate is 225,000, down 11,000 from the previous week.

(8:30 a.m. ET) U.S. Philadelphia Fed Index for December.

(8:30 a.m. ET) U.S. current account deficit for Q3.

(10 a.m. ET) U.S. leading indicator for November.

Earnings include: Accenture PLC; BlackBerry Ltd.; Cintas Corp.; FedEx Corp.; Nike Inc.

–

Friday December 19

Japan CPI

Euro zone economic confidence

Germany consumer confidence

(8:30 a.m. ET) Canadian retail sales for October. The Street expects a flat reading month-over-month.

(8:30 a.m. ET) Canada’s new housing price index for November. Estimate is a decline of 0.2 per cent from October and down 2.1 per cent year-over-year.

(8:30 a.m. ET) Canadian household and mortgage credit for October.

(10 a.m. ET) U.S. existing home sales for November.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment Index for December.

Earnings include: Carnival Corp.; Paychex Inc.

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What we are t

Empire Co. Ltd. says it earned $159 million in its latest quarter, down from $173 million in the same quarter last year. The company behind Sobeys says its profit amounted to 69 cents per diluted share for the quarter ended Nov. 1 compared with a profit of 73 cents per diluted share a year earlier. Sales for what was the company’s second quarter totalled $8.0 billion, up from $7.8 billion in the same quarter last year. Same-store sales were up 2.0 per cent, while food same-store sales rose 2.5 per cent. Empire also announced the appointment of Jo Mark Zurel to the company’s board of directors. Zurel is chair of the board at Fortis Inc. and also serves on the boards of Major Drilling Group International Inc. and Highland Copper Company Inc