We reach the last day of the last full trading week of 2014. Yesterday was all about equities and the reversal of some of the recent losses in the wake of the FOMC press conference. We’ve seen these gains mirrored in Asia, which should provide a firmer open in Europe. Some stability has emerged on the rouble as well, which has allowed the spike higher in the VIX to be reversed. Overnight, the Bank of Japan has kept policy steady, with USDJPY moving higher for the third consecutive day as strains on the rouble has eased. Yields in Japan have plunged to further record lows, the 2Y down to -0.04%, with the 5Y bond at 0.04%, with this also a factor in the yen reversal.
In terms of events, there are no significant events scheduled to cause market volatility, but being the last trading day of the week, then volatility is more likely to come about from flows and positioning in liquidity thinned markets. Note that the ECB announces the repayment on one of its 3Y long-term loans. A greater repayment would undermine the ECB’s stated intention of expanding their balance sheet by EUR 1 trn. Whilst in theory this should support the single currency (smaller ECB balance sheet supporting the euro), in practice it also means that QE from the ECB is more likely going forward. Note that both CPI and retail sales data are seen in Canada, with the Canadian dollar having recently reversed from its 1.1674 high.