OPEC deal and near term oil prices

Welcome to the beginning of the new forex week, here is a guide to indicative early currency rates

Tech issues not so easy.

When everyone is looking at something, it changes

In quantum physics, the observer effect is the theory that simply  observing a situation or phenomenon necessarily changes that phenomenon.

Economics has something similar, called Goodhart's law. It's named after British economist Charles Goodhart who observed that when a measure becomes a target, it ceases to be a good measure.

The issue is that once everyone is watching a measure or a target and knows what it means, then the observers anticipate the effects and adjust for the outcome, thus changing the effect.

The idea is prescient because of the market's intense focus on the yield curve inversion. When longer-dated yields fall below shorter-dated yields, it's a classic recessionary signal. Intuitively it makes sense because it signals a situation where people would rather have long-term safety than earn more yield in the near-term.

Its effectiveness as a predictor of recessions is undoubtedly excellent but whether the curve is inverted is always a matter of interpretation. Surely 10-year yields falling below 3-month bill yields is an inversion but is 5-year yields falling below 2-year yields as strong of a signal?

More importantly, does Goodhart's law apply? If all market participants believe it's a sure sign of a recession, then they will surely behave differently than they would otherwise. Similarly, central bankers are also watching the yield curve more closely than ever and as the curve approaches inversion, they may react.

Taken to a further extreme, you may have central banker who actively target the entire yield curve in the belief that so long as the curve is steep, a recession can't occur.

The idea of Goodhart's law is that any statistical relationship will break down when used for policy purposes.

This is frequently seen in regulation and even in the workplace. Whenever targets are set, people find ways to game and abuse them, and so do broad markets and the economy.

ForexLive

Trade balance data for November from China

• expected CNY 226.50bn, prior was CNY 233.63bn

• expected +13.8%, prior was +20.1%

• expected +18.3%, prior was +26.3%

USD terms

• expected $ 34.00bn, prior was $ 34.022bn

• expected 9.46%, prior 15.6%

• expected 14.0%, prior was 21.4%

• was USD 31.78 bn in October 

• Heads up for AUD traders - China trade data is due out over the weekend

• November CPI expected 2.4%, prior 2.5%
• November PPI expected 2.7%, prior 3.3%

Forex news for NY trading on December 7, 2018.

• US stocks struggle once again. Major indices down -2.2% to -3.05% on the day
• Brexit Parliamentary vote on Tuesday. ECB on Thursday
• Trump: Rex Tillerson was as "dumb as a rock"
• US consumer credit for October $25.384B vs $15.0B estimate
• US crude oil futures settle the week at $52.61
• Even more Bullard: Rates at neutral or above neutral today
• Huawei's Meng charged with conspiracy to defraud banks
• Trump is worried he's causing the drop in the stock market - report
• Canadian prosecutor says Meng arrest is for fraud; US warrant issued in August
• More from Bullard: There is no purpose in Fed inverting yield curve to preempt inflation
• Fed's Bullard: Repeats call to leave rates unchanged
• Baker Hughes US oil rig count 877 vs 887 prior
• Brainard Q&A: We are in vicinity of Fed's dual goals
• Fed's Brainard: Gradual rate hikes remain appropriate in 'near term'
• Most European indices end up but near the lows
• Atlanta Fed and NY Fed both lower Q4 US GDP forecasts to 2.4%
• CDU elects Annegret Kramp-Karrenbauer to succeed Merkel as party leader
• OPEC cuts production 800K bpd from October levels
• Bitcoin takes another run to the downside. New 2018 lows.
• Theresa May could face more resignations on Tuesday - report
• US wholesale inventories for October (F) +0.8% vs +0.7% expected
• December preliminary U Mich consumer sentiment 97.5 vs 97.0 expected
• Canada November employment change +94.1K vs +10.0K expected
• US November non-farm payroll +155K vs 198K expected

In other markets:

• Spot gold is up $10.28 or 0.83% at $1248.03
• WTI crude oil futures are up $.82 or 1.61% at $52.32
• Bitcoin on Coinbase tried to rally in the last few hours moving from a low of $3212 to $3550 but reversed back to $3338 

For the week, below is a look at the percentage changes of the major indices. The Shanghai composite and the Austalia S&P/ASX were the only indices that eked out gains. 

In the 10 year note sector today, yields were mixed with the more "safe countries" (i.e. Germany, UK (if you believe that) and France) yields moving higher marginally. The more risky countries had their yields move lower.

Next week the Brexit vote is the BIG event.  The ECB has a rate decision (QE is to end at the end of the year).  What do EU yields do after it is over? It is hard to ignore the stock market. The Fed decision is on December 18th.  The 90-day clock is ticking with China.  

Nasdaq tumbles over 3%

ECB meeting also on the schedule.Key events and releases

Pres. Bush's memorial service delays the release until Monday

Off the "kinder, gentler" rhetoric I guess ; )

Prior month $10.923B revised to $11.57B

Up from last week's end of week settle at $50.93

Vote on contested 2019 budget

It is hard to keep him quiet (be thankful he is not Chairman)

Crown lawyer outlines the charges

The charges are linked to skirting US sanctions on Iran. Meng has been charged with conspiracy to defraud multiple banks.

The next headlines will be on whether she's held in custody or released on a promise to appear. I'm going to guess that she's held but it's only a guess.

No love yet for stocks

Trump is 'glued' to stock market coverage

Trump has spent this week calling advisers and looking for validation that his trade war with China isn't behind the trouble, according to the WSJ.

He questioned why markets weren't reacting more positively to his meeting with Xi.

The report says he remains convinced that the Fed -- not him -- is the problem.

"Several people close to the president say he places as much importance on the health of the Dow Jones Industrial Average for validation of his job performance as he does with his polling numbers," the WSJ writes.

One person said he was 'glued' to the market's performance.

Details at Meng's bail hearing

We're waiting to hear if she's released on bail or held.

At the hearing, they say she was arrested in Vancouver in transit from Mexico to Hong Kong.

The crown lawyer says the US accuses a Huawei unit of doing business in Iran.

100 hour MA at 52.60.  200 hour MA at 52.05

Bullard comments

• Narrowing yield curve is signal from markets that Fed has gone too far
• Fed is now a little bit hawkish based on where it needs to be to control inflation

US 2s10s are at 14 bps today after falling to 9 earlier this week.

Gold up $9

Gold is once again above the October high as it closes out its best week in seven weeks. I highlighted $1243 yesterday as a level to watch on the close. Today's close is even more important because it represents a weekly close as well.

Here are 7 ways the stars are aligning for gold.

Comments from Bullard

• Says he's the most-dovish FOMC member
• Modernized Taylor Rule suggests keeping rates on hold

Slowdown in drilling

• Second week in a row of slower drilling
• Gas rigs 198 vs 189 prior
• Total rigs 1075 vs 1076 prior

That's a meaningful drop from US drillers.

• Permian: -4 to 489
  Eagle Ford: +1 to 71
  
  

Brainard answers audience questions:

• From last crisis we learned that the Fed has a good tool kit

The 1.2698 area is now eyed