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Trending Economic: European Edition [21 December 2015]

USD has strengthened post the FOMC rate rise but remains far from reaching the highs seen at the end of November. The Rates market is still pricing in a 50 bps rates rise in 2016 despite the Fed keeping the median projection for the target Fed funds rate unchanged at 1.375% by the end of next year. Also the Fed funds future rate for April is still not fully pricing in a possible rate rise which highlights the room for yields and USD to rise. In terms of US data the most important remains the durable goods orders and personal spending due to come in on Wednesday.

The Spanish general election resulted in a fragmented parliament, with the conservative People’s Party ending up with 123 Seats with 29% vote and the Socialist coming in second with 90 seats with 22%. The Anti-austerity party Podemos which is barely two years old, ended up with 69 seats with a 21% vote, while centre-right Ciudadanos won 40 seats with 14% vote. Overall this means that there is no easy solution with the previous two-party coalition seeming unlikely. Also there is no deadline to form the new government according to the constitution so talks can extend for weeks. This is likely to weigh heavy on Spanish bonds but EUR will largely be unaffected.

CAD remained largely unaffected by the November CPI data as y/y figures improved but m/m numbers deteriorated. We see CAD to be largely driven by Oil prices, with next key economic data release for Canada being October GDP (on Wednesday) which is expected to improve to 0.3% from previous -0.5%.