Dollar Slips At End Of Year

The US dollar is trading with a slightly heavier bias as the last minute position adjustment takes a toll. The dollar-bloc and Scandi’s are doing somewhat better, sterling is a few ticks higher, while the euro and yen are straddling yesterday’s closing levels in the moribund activity. Several markets in Asia, including Japan and Korea, and Europe, like Germany, Italy, Switzerland, and Sweden for closed today for the holiday.  

The Asian equity markets there were open generally rose, with the MSCI Asia-Pacific excluding Japan up about 0.4%, while Europe’s Dow Jones Stoxx 600 is up about 0.3% near midday in London. The S&P 500 are set to finish the year as the best performing major stock market.  It is up about 12.5% coming into today’s session. The UK’s FTSE and France’s CAC are going to finish the year lower (2.5% and 0.6% respectively). Canada’s Toronto Index was second best behind the US with a 7.5% gain coming into today, edging out Japan’s Nikkei and its 7.1% rise. 

European bonds are finishing the year mostly at record lows. This is true not just about core bonds in Germany and France, but also in Spain, Italy and Portugal. Comments from the ECB’s Praet played up the likelihood of a sovereign bond buying program next year. The Greek election has been formally announced for January 25, three days after the ECB’s next meet, when the wider asset purchase plan is widely expected to be unveiled. The following meeting is in early March in Cyprus. 

Given the leading candidate in the Greek election is demanding the official sector restructure the country’s debt and insists on rolling back austerity, the ECB may find it difficult to buy Greek bonds. Yet there is a work around. Given the structure, the key is when the ECB announces a policy, who executes and who retains the risk, the ECB itself or the national central banks. A sovereign bond buying program that is authorized by the ECB, but executed by the national entity, which retains the risk can square the circle.