After the recovery the day before yesterday, US equities reversed again and made a new low for the week. Not really what I was expecting, but given the pattern of equities up, US dollar up, and my concerns that the greenback might be due a correction, I guess I shouldn’t have been too surprised. It’s difficult to tell which is the tail and which is the dog with respect to equities and the dollar, but the relationship is holding firm with EUR/USD up slightly today, and USD/JPY has been as low as 117.44 this morning although it’s back on a 118 handle now. There is certainly no feeling of disorderly markets out there, but under the surface we are seeing moves and levels that take our minds back to the 2007 – 2008 period, which of course was when the global financial crisis happened. Whether you’re looking at Middle Eastern stock exchanges, or in Greece, or the volatility spike in Shanghai, there is something interesting happening, it’s obviously not under the surface, but it has the feeling of a wind that comes out of nowhere then dissipates, before a bigger storm. I’m not saying anything big is about to happen, but these aren’t quite the same markets that we had a year or two ago. Markets that were absolutely convinced that central bank largesse would continue indefinitely, these are most definitely not those markets.


Lots of inflation data coming out today in the Eurozone, so far we’ve seen year on year HICP is up 0.6% in November, and 0.4% in France for the same period. Swedish year on year CPI down 0.2%, and while not a Eurozone economy it is inextricably linked and exposed to the same forces. More ammunition for Mr Draghi then! Meanwhile, elsewhere in the world the IMF has warned that South Africa needs to address structural problems that have led to a disturbing collapse in its potential growth rate, while Prime Minister Modi in India has announced plans to sell stakes in state backed banks… could India become a more dynamic economy? Definitely going the right way about it!


These days our blogs wouldn’t be the same if we don’t at least comment on energy prices.. brent crude made new year to date lows yesterday and we remain below $65 this morning. Perhaps it’s not all doom and gloom however, because I am starting to see signs of momentum divergence now, a recovery of some sort is not far away. I wouldn’t hold out too much hope for anything significant, but at least some relief from new daily lows would be welcome respite for energy producers. Will that be enough to inspire recoveries in the currencies of oil producing economies? Colour me sceptical, once the vulnerabilities of these economies has been exposed by collapsing oil prices, don’t be surprised if other issues come to light.


Over the last 12 hours we’ve seen no change in the policy settings of both the RBNZ and SNB, the central banks of New Zealand and Switzerland respectively. But the Norwegian central bank has just weighed in with an unexpected cut, moving the benchmark rate from 1.5% to 1.25%. This is a surprise, but then again perhaps it shouldn’t be, Norway while a very advanced economy is also heavily oil dependent. Perhaps this move is a reaction to the collapse of energy prices, the Norwegian krone has just fallen 2.3% versus the euro, further evidence that the market has been blindsided by Norgesbank.


Later on this morning we will see GDP data for the Irish economy which should be impressive… Ireland really is the poster child for taking your medicine after years of profligacy, if only it was so easy elsewhere in Euroland. The other data of note this afternoon will be retail sales in the United States, I don’t believe the numbers should be dramatic either way, and I certainly don’t anticipate something that will have much of an impact on asset prices. What is of far more interest to me today, is whether developed market equities will be able to form a base today? We are getting close enough to the FOMC meeting next Wednesday that I am starting to question if a strong recovery is possible before it. Let’s remember that the wording of the Federal Reserve statement next Wednesday is likely to be the last really significant macro event before the end of the year. Will they make changes to their guidance? Will we get a better idea about when the process of normalisation will start? These are huge questions and will impact activity in the first quarter of 2015. These questions will also most certainly influence where equities and the dollar go from here to the end of the year.


As I’ve said over the last few days, that I am concerned about the state of the dollar trend. EUR/USD trades near 1.2450 at the moment, and the trigger level (in my view) for new lows is some way below at 1.2344. We’ll tweet during the day if that level gets taken out, but it’s really hard to imagine it will be…