Quiet Start to Busy Week as Markets Set Up for ECB and Payrolls

US markets kicked off the week fairly quietly, with stocks down marginally and Treasury yields and swap rates largely unchanged.  Between month-end, the ECB meeting, Yellen’s speech before the Joint Economic Committee, and the final payrolls report of the year all on tap this week, activity is likely to pick up as December gets underway.  One of the key themes this week is the divergence of policy between the Federal Reserve and European Central Bank.  Unless Friday’s payrolls report dramatically misses expectations, the Fed is expected to hike rates when it meets later in the month, while the ECB is all but certain to announce an expansion of its quantitative easing program this week.  The euro has experienced its worst month versus the dollar since March and the spread in yield between German and American notes has swelled to the largest in nine years.

Other news today includes the Chinese yuan being added to the IMF’s Special Drawing Rights (SDR).  Currently only the US Dollar, Euro, Japanese Yen, and British Pound are part of the basket.  The last change to the basket composition took place in 2000, when the German Mark and French Franc were replaced by the euro.  The move is considered largely symbolic, and illustrates how large a role China now plays in the global economy, but there could also be some economic benefits such as a boost of investment in the Chinese stock market.  Chinese policymakers have taken steps to make the currency’s value more market-driven, as Beijing’s previous policy of keeping the yuan artificially low to boost exports was viewed as a hurdle to broader market acceptance.  Even though the yuan’s inclusion was approved today, its actual addition won’t take effect until October of 2016.

Today’s data included a report that pending home sales rose less than expected in October, while the first look at Black Friday sales showed a 1.5% decline YoY.  Historically, Black Friday and Cyber Monday sales don’t necessarily correlate well to the final holiday season sales statistics, but they are still interesting to look at from a consumer behavior standpoint.  There are no scheduled Fed speakers today.