With traders returning to their terminals after an exceptionally unpredictable and entertaining World Cup, a final round of year-end rebalancing is driving most major currencies up against the dollar. Treasury yields are flat, commodity prices are firmer, and equity futures are pointing to incremental gains at the open.

Japan’s yen is stabilizing after an unusually-volatile weekend trading session. On Saturday, the Kyodo news agency, citing government sources, said Prime Minister Fumio Kishida was planning to work with the next Bank of Japan Governor on adding “flexibility” to the country’s inflation target – a step that could pave the way for a relaxation in the yield curve control policies which hammered the currency in 2022. The yen surged at the open yesterday, only to tumble when Chief Cabinet Secretary Hirokazu Matsuno denied the report, saying “it’s not true that such a decision has been made”. Traders are increasingly convinced a policy change is in the offing once current Governor Kuroda steps down in April.

Covid infections in China are soaring, with some reports suggesting tens of millions have caught the virus in recent weeks, but onshore equity markets and the offshore yuan are performing well as investors bet on a longer-term recovery. The weekend’s Central Economic Work Conference resulted in a set of policy guidelines that are aligned with higher growth targets and stronger domestic consumption – although they stop short of rescuing the country’s oversized and over-indebted property sector.

There are no major North American data releases scheduled for today, but the National Association of Home Builders housing index, due at 10 am, could attract some interest. The index is seen moving up to 34 in December from 33 a month prior, suggesting that real estate markets are pulling out of a policy-induced tailspin.

Several important data releases will keep traders on their toes in holiday-thinned US markets in coming days. Wednesday’s Conference Board consumer confidence measure is expected to inch slightly lower as economic uncertainties grow. Friday’s update in the core personal expenditures index – the Federal Reserve’s preferred inflation indicator – is expected to show prices climbing 0.3 percent month over month in November, outpacing the increase in the more-noisy consumer price index over the same period. And ex. transportation durable goods orders are seen slumping to a 0.1-percent monthly advance from 0.5 percent in the prior month.

In Canada, tomorrow’s preliminary estimate for November retail sales is expected to show spending remaining elevated for another month, with solid auto purchases, strong employment conditions and holiday shopping helping to offset falling gas prices and rising interest costs. Headline consumer prices are seen rising 6.7 percent year over year when November’s data is released on Wednesday. And monthly gross domestic product, out on Friday, should show activity stalling as housing markets retrench and businesses pull back. The loonie remains on the defensive as investors bet the Bank of Canada will raise rates by less – and begin cutting them sooner – than the Federal Reserve.

Karl Schamotta, Chief Market Strategist