Dollar Mixed In Thinning Activity, Dow 20,000 Watch Continues

The US dollar is narrowly mixed as the holiday markets make for light turnover. Global equity markets are not finding much encouragement from the new record highs by the Dow Jones Industrials.  

There have been a few developments to note. First, the Swedish krona is the strongest of the major currencies, rallying 0.7% against the dollar and reaching a two-month high against the euro following the Riksbank meeting. The central bank extended its bond-buying program through H1 17, but at a slower pace. 

It was a controversial decision and could be the last efforts. Two of the six-member board wanted to stop the bond purchases now.  One other was interested in extending the purchases, but at half the pace that was ultimately decided. Currently, the Riksbank is buying SEK45 bln of bonds (for H2 16). In the first half of next year, it will buy SEK15 bln of conventional bonds and SEK15 bln of inflation-linked bonds. It kept the deposit rate at minus 50 bp. 

Second, the European Court of Justice ruled that Spanish banks that overcharged for mortgages must offer compensation. This was a blow to Spanish banks, which fell in response to the final ruling. The preliminary ruling allowed a time-limit to claims for reimbursement, but the final court ruling disallowed the constraint. All Spanish banks are not equally affected, and some banks have put aside some of the funds. Still, financials are the worst performing sector in Spain today. They are off nearly 1.75%  in late morning turnover, while the Spanish market as a whole is off about 0.75%.  

Meanwhile, Italian banks are under modest pressure. The index of Italian banks is off 0.6% and is the sixth declining session of the past nine. After the cabinet approved increasing the country’s debt by 20 bln euro to help the banks, both chambers of parliament will vote on measures today. For reasons that seem to stem more from politics and economics, Italy has been slow to address its banking system woes, and when it does move, it tends to be too little.  There is no shock and awe or even a pretense of getting ahead of the curve of expectations.