According to our calculations, Santa Claus doesn’t exist. There are roughly two billion children in the world, and even if half of them are naughty, he and his team of reindeer would have to visit more than 32 million households every hour, 537,634 every minute, and 8,961 every second during their 31-hour time-zone and rotation-adjusted global delivery window. If each child on the nice list were to receive a relatively Scrooge-ish one-pound gift, Santa’s sleigh would weigh at least 450,000 tonnes. While traveling at nearly 4,000 times the speed of sound, this colossal mass would create enough air resistance to blaze a path of devastation across Earth’s surface – wiping out every home that he visits, chimney or no chimney.
But it’s a nice idea.
Sugar plums are certainly dancing in investors heads this morning, with equity indices in record-breaking territory, commodity prices staging a solid recovery, and the dollar consolidating near a 14-year high on a trade-weighted basis. The ‘Santa Claus rally’ that began just after the American election continues unabated, with traders convinced that Donald Trump and his merry band of ex-bankers can lead the American economy to a spectacular level of outperformance in the next year by investing in infrastructure, increasing tariffs and cutting taxes. Few seem concerned that the dollar’s rapid rise could unleash a by freezing activity in other areas of the global economy, and very few are worried that the monetary elves at the world’s most powerful central bank could tinker too much with interest rates.
The euro, yen, and pound are all trading within relatively tight ranges as we go to pixels, with year-end rebalancing flows gradually becoming a force to be reckoned with. After sharp declines earlier in the week, resistance is rapidly coalescing near big round numbers in most major currencies, suggesting that market participants should be prepared in case a correction takes place at some point over the next ten days.
Closer to the North Pole, the exchange rate is sharply weaker this morning, falling after the central bank less-than-subtly suggested that citizens are spending too much time building gingerbread houses, and not enough in Santa’s workshop building toys for export. The Bank of Canada released its semi-annual Financial System Review yesterday, warning that housing market imbalances and high levels of household indebtedness continue to raise concern among policymakers. This comes a day after the national statistics agency reported that household credit market debt topped more than $2 trillion by the end of the last quarter, with Canadians owing $1.67 for every dollar in disposable income – well above the levels seen in the United States prior to the global financial crisis. According to numbers recently published by the Bank for International Settlements, supposedly prudent Canadians are carrying more debt than any other G8 country, with total household debt almost twenty percentage points higher than our neighbours south of the border.
As the Bank of Canada puts it, “the most important risk remains household financial stress and a sharp correction in house prices, triggered by a large and persistent nationwide rise in unemployment. The likelihood of this risk materializing, however, remains low.” We certainly hope so – but the Canadian dollar will have difficulty outperforming while these exposures remain elevated. Have a great weekend!
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