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Daily Agenda: The Week Ahead, December 29, 2014 – January 2, 2015

As markets hold steady going into the last week of 2014, investors look for risk signals as they rethink their portfolios for the New Year.

The week between the Christmas holiday and New Year’s is often a time for reflection among investors, given the usual year-end combination of lower trading volumes, a slowdown in economic data releases and virtually no corporate announcements. Markets’ macro structure largely have held steady in recent weeks. U.S. economic indicators remain strong while activity remains weak abroad, supporting dollar strength and keeping a thumb on the scale for yields as easing abroad offsets concerns over the Federal Reserve’s presumed tightening. Despite stretched multiples, U.S. equity markets are at historical lofty highs and oil prices remain low. Geopolitical risk factors have failed to spark any hint of panic in financial markets. In this environment, the question of what might spark volatility weighs on fund managers who are pondering how, if at all, to shift their asset allocations as the new quarter — and New Year — gets underway. In a note to clients yesterday, Don Rissmiller, chief economist at Strategas Research Partners in New York, predicted that investors should prepare for choppier waters in 2015. “We’ve already seen (broad) commodity price volatility,” he writes. “Bond market volatility should pick up, given Fed tightening in 2015. If fixed income is getting more volatile, it’s a small step to additional equity market volatility. Market gyrations, which have picked up a bit since October, may become more the norm versus the exception.”

Monday, December 29: The third round of Greece’s national elections will dominate European market narratives on Monday, as concerns mount over a possible political takeover by the antiausterity opposition party Syriza. Separately, November retail sales data for November will be released in Germany. Recent improvement in activity measures in the country, while providing hope for overall regional fundamentals, have underscored a growing divergence between the two largest euro zone economies as France remains moribund. No major economic data releases are scheduled in the U.S.

Tuesday, December 30: Euro zone money supply and private sector lending for November numbers are being released. To date, concerns over maintaining capital ratios and avoiding risk have caused a bottleneck in the European bank sector. This has caused the European Central Bank’s massive liquidity measures to fall short in driving more credit for small and mid-sized businesses. In the U.S., October Case-Shiller home price index data will be published. September marked the ninth consecutive increase for the benchmark housing market index, albeit at a consistently moderating pace. Also to be announced on Tuesday are Conference Board consumer confidence index levels for December.

Wednesday, December 31: On the last day of the year and a bank holiday in Japan, the primary economic data point scheduled for Asia is the revised December HSBC manufacturing purchasing managers’ index (PMI) release. As concerns over moderating industrial activity remains central to global market risk narratives, any significant revision will likely impact near-term market sentiment, particularly in commodity markets. Private sector credit data for November will be released by the Reserve Bank of Australia. In recent speeches and releases, while noting that aggregate inflation levels remain manageable, RBA policymakers have continued to express concern over the impact of property lending on rising home price levels. As the investors gear up for the market holiday, a slew of key U.S. economic data points will be announced, including weekly initial jobless claims, pending home sales and weekly Energy Information Administration oil stockpile levels. Many analysts anticipate signals that more North American production capacity is being taken offline as lower crude prices remain low relative to recent historical averages.

Thursday, January 1: The only significant economic data release scheduled for New Year’s Day is revised December manufacturing PMI from China’s National Bureau of Statistics, which focuses on larger, state-controlled businesses as opposed to the HSBC sponsored index, which is based on activity of smaller companies.

Friday, January 2: On Friday, revised Markit manufacturing PMI data for primary European economies will be released. On deck in the U.S. are December Institute for Supply Management measures, scheduled for release at 10 am, U.S. Eastern time.

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