November largely followed the seasonal script that I laid out at the start of the month until omicron upended everything. Stocks hit record highs, the yen was soft, oil slipped and the loonie struggled. They were all great trades until the fundamentals (and fear) took over.
That's not going to change in December as we play a 50/50 game of chicken with omicron.
All else equal though and here are the seasonal trends for December.
1) Gold back to life
At the start of November I wrote that gold traders should look to buy a dip in mid-to-late November. Well, here we are with gold at the lowest since November 1. Note that gold is holding the November low so far. That's a a good sign and a spot to manage risk.
I don't think anyone can rule out a gold rout on an omicon risk rout but there's also a pretty good chance this simply leads to lower rates for longer and more fiscal spending -- both gold tailwinds. The Jan-Feb period is extremely strong seasonally for gold.
2) Stocks moderately positive
The (forgotten?) rout in 2018 skews the averages a bit but the S&P 500 has risen by an average of 0.55% in December since 2000, which makes it the sixth best month. That's not quite the Santa-Claus rally we're often fed. Notably though, it's risen in 14 of 20 years. The Nikkei and FTSE 100 tend to do a bit better than the US.
3) Dollar weakness
Powell surprised the market today and gave life to the dollar but that move has surprisingly faded. Perhaps that's a sign of month end flows or a taste of what's to come for repatriation flows. The dollar index has declined in four straight years in December and it's the worst month for DXY over the past 20 years.
4) Euro strength
This isn't a surprise given the DXY weakness but December is easily the best month for the euro. The technicals and fundamentals aren't great but hopefully Europe has better covid news by year end -- that could be a catalyst. The average gain since 2000 is 1.53%.
5) Natural gas declines
The months of Dec, Jan and Feb are poor for natural gas as the market seems to go into every winter fearing cold and then breathing a sigh of relief when it doesn't come. Today, Henry Hub gas broke through some support levels so that lines up. At the same time, there's emerging talk of cold weather hitting the US in mid-December.
The flip side of the energy trade is that a great seasonal period for oil begins in January so buying a dip in crude is a worthwhile strategy, especially if OPEC decides to chip in with some help.
6) Kiwi craze
December is by far the best month of the year for the NZD/USD trade over the past two decades with an average gain of 1.86%. Obviously much hangs on omicron but the seasonals are strong. Technically, we haven't seen a close below the August lows yet and that's about the best thing I can say.