Dollar Slips As Year Ends

The US dollar is trading with a slightly heavier bias as the last minute position adjustment takes a toll. The dollar-bloc and Scandis 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 are closed today for the holiday.

The Asian equity markets that were open generally rose, with the MSCI AC Asia Pacific excluding Japan up about 0.4%, while Europe's STOXX 600 is up about 0.3% near midday in London. The S&P 500 is 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 meeting, 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 of 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.

The other point to be made is that the polls continue to suggest, as we have noted before, that while Syriza may secure the most votes, it will fall short of a majority. This could allow the centrist parties to form a coalition. Alternatively, as was the case in 2012, it could trigger another election if no parliamentary majority can be cobbled together. This could be the worst case as the EU's assistance--the two month extension--is set to expire at the end of February.

Oil is finishing the year with new losses. The U.S. is making it easier for producers of the lightly refined condensate to export. The US is producing about 3.8 mln barrels a day. Meanwhile the API showed an 800k barrel increase in crude stocks, whereas the market expected a decline. EIA figures will be released later today.

The latest Baker-Hughes estimate showed a decline of 37 rigs in the week ending December 26. This leaves 1499 onshore oil rigs in the US, which is the least since April. It is the third weekly decline, over which time some 76 rigs have been idled. While the rig count is important, production itself is key. Less efficient rigs are being closed and during this time output has actually risen. The US produced a modern record of 9.14 mln barrels per day in the week ending December 12, and slipped to 9.13 mln bpd in the week ending December 19.