Morning Forex Fundamental

EUR

I expect further cheapening of [Italian] bonds" - Alessandro Giansanti, rate strategist at ING
News: Italian bond yields rise before auction
Impact: High
Italian government bonds fell on Tuesday, pushing three-year and ten-year yields higher before an auction on Thursday, where Rome plans to sell 8.5 billion of debt, as investors are worried the euro zone's third-largest economy may lose access to financial markets.
"The 10-year is the area where Italy has to rely more on foreign investors and it will be very tough to sell especially at this point in the year, so I expect further cheapening of the bond going into the auction," ING rate strategist Alessandro Giansanti said.
"The three-year would be easier to sell, there is some demand from the domestic investors. If they see really weak demand in the 10-year ... they may sell more short-term [debt]."

USD

"Consumers are more optimistic that business conditions, employment prospects and their financial situations will get better" - Conference Board Inc.
News: Consumer confidence improves in December
Impact: High
U.S. consumer confidence rose to an eight month high in December as consumers became more optimistic on the outlook of the country's economy, the Conference Board Inc. said on Tuesday. An index of sentiment increased to 64.5 from 55.2 in November.
"A large part of the problem in the economy is one of confidence, and to the extent that sentiment begins improving it would be a positive for growth," said Dana Saporta, director of U.S. economic research at Credit Suisse in New York. "Whether this will be sustained really depends on the employment situation going forward."
"While consumers are ending the year in a somewhat more upbeat mood, it is too soon to tell if this is a rebound from earlier declines or a sustainable shift in attitudes," said the Conference Board in a statement.
 
GBP

"U.S. data is providing what markets have been looking for in terms of a wider economic improvement and rising employment" - Witold Bahrke, a senior strategist at PFA Pension A/S
News: U.K. stocks rose on Friday
Impact: High
U.K. banks were closed on Tuesday in observance of Boxing Day.
U.K. stocks rose on Friday amid better than expected economic data from the world's largest economy. The benchmark FTSE 100 index gained 1.02%, or 55.73 points, to 5,512.70. The FTSE All-Share Index edged higher 0.98%, or 27.48 points, to 2,827.09.
"U.S. data is providing what markets have been looking for in terms of a wider economic improvement and rising employment," said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen.
Nationwide Building Society is to announce its month on month house price index on Friday. Economists expect house prices to rise 0.3 percent in December, after increasing 0.4 percent in November.

CHF

"With small volume, the markets can move without much effort" - Benno Galliker, a trader at Luzerner Kantonalbank
News: Swiss stocks declined on Tuesday after U.S. housing report
Impact: Medium
Swiss stocks snapped a five-day rally on Tuesday after S&P/CS report showed U.S. house prices fell more than expected.
The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, shed 0.12%, or 6.98 points, to 5,886.91. The broader Swiss Performance Index edged lower 0.13%, or 6.85 points, to 5,302.10.
"With small volume, the markets can move without much effort," said Benno Galliker, a trader at Luzerner Kantonalbank in Lucerne, Switzerland. "The weak data on house prices certainly don't help. Even so, the outlook for the whole week remains optimistic."
KOF Economic Research Agency is to announce its KOF Economic Barometer later today. Economists expect the reading to decline to 0.25 from 0.35 in November.

JPY

"There's no outstanding catalyst to buy stocks" - Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.
News: Japanese stocks edged lower on Tuesday
Impact: Medium
Japanese stocks dropped on Tuesday amid slow holiday trading. The Nikkei 225 lost 0.46%, or 38.78 points, to 8,440.56, while the broader Topix fell 0.30%, or 2.19, to 724.25.
"There's no outstanding catalyst to buy stocks," said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co.
"Trading energy plunged in the Tokyo market yesterday. Today [Tuesday] as well, we can't expect foreign investors to buy shares as the overseas markets are closed."
Japan's Cabinet Office is to announce month on month change in core machinery orders January 10. Orders dropped 6.9% percent in October, compared to September.

What to Read Today

 

Europe

• The ECB allotted 489 billion euros in three year loans to 523 banks at the average rate of 1 percent on Wednesday, exceeding forecast of 293 billion euros.
• 26 EU member countries consider joining new treaty on deeper fiscal union, UK isolated; Merkel is "very pleased" with outcome of the summit.
• The ECB cut benchmark rate to 1% on December 8, but fell short of confirming it will buy EU member countries' bonds in unlimited quantities.

Euro Seen Having Another Bumpy Ride in 2012
 
http://www.cnbc.com/id/45774841

2011 was the most dramatic year for the euro in the decade since the single currency was launched.

European Stock-Index Futures Drop Before Italy Sells Debt; Areva May Move

http://www.bloomberg.com/news/2011-12-28/european-stock-index-futures-drop-before-italy-sells-debt-areva-may-move.html

European stock futures declined, indicating that the benchmark Stoxx Europe 600 Index may snap a three-day rally, before Italy sells as much as 20 billion euros ($26.2 billion) of debt today and tomorrow. U.S. index futures and Asian shares dropped.

USA

• The latest US macroeconomic data indicates that the national economic recovery is getting stronger; the number of Americans claiming for unemployment benefits fell to 364K while unemployment declined to 8.6% in November.
• Obama signed a spending bill of nearly $1 trillion on Saturday, averting collapse of federal government services; Congress approved a two-month extension of payroll tax break for 160 million U.S. employees on Friday.

Obama taps economist, banker as Fed governors

http://www.reuters.com/article/2011/12/28/us-usa-fed-whitehouse-idUSTRE7BQ0RA20111228

President Barack Obama will nominate Harvard economist Jeremy Stein and Jerome Powell, an investment banker and former Treasury official, to the two empty seats on the Federal Reserve's policy-setting board of governors.

Washington's year of drama leaves little done regarding debt

http://www.washingtonpost.com/business/economy/washingtons-year-of-drama-leaves-little-done-regarding-debt/2011/12/23/gIQAB6kRLP_story.html?hpid=z3

Reid Ribble, a Wisconsin roofing contractor-turned-Republican lawmaker, has helped change the way Washington talks about the national debt. That's not to say he has done much about the debt itself.

Asia & Pacific

• Japan's economy grew 1.4% in the third quarter 2011, while the exports fell for a second month in November as the global economy is cooling down; survey of Japanese manufacturers shows business conditions are deteriorating.
• China's industrial output contracted in December, intensifying worries the country might face hard economic landing next year whereas China's top officials guarantee growth will continue in 2012.

Japan pact raises Chinese yuan's status

http://www.marketwatch.com/story/japan-pact-raises-chinese-yuans-status-2011-12-28?link=MW_home_latest_news

An agreement reached this week that will see Japan hold Chinese bonds as part of its foreign-exchange reserves may herald the emergence of China's yuan as a new global reserve currency, according to analysts.
Japan's industrial output dips 4% on yen and flooding

http://www.bbc.co.uk/news/business-16337546

Japan's industrial production fell in November, pulled down by a strong yen, weak global demand, and after flooding in Thailand damaged many suppliers.