Previewing today’s market: near record low liquidity, with chance of ridiculous volatility in the Ruble, energy and equity markets.
While no doubt today’s main event will be the “considerable” FOMC announcement and the Fed’s downward-revised economic projections followed by Yellen’s press conference, what traders will be most excited by is that, finally, Jim Bullard will no longer be bound by the blackout period surround FOMC decisions, and as such can hint of QE4 again at his leisure during key market inflection (i.e., selling) points.
FOMC aside, overnight markets were shaped by the now usual suspects: declining energy, with WTI trading again below $55 at last check, and Brent also back below $60. One of the drivers for today’s weakness appears to be a late digestion of yesterday’s story that Russia will race OPEC to the bottom with “plans to boost daily oil exports in the first quarter of 2015 by 6.6 percent to 52.32 million tonnes, quarter-on-quarter, according to Reuters. This follows WTI closing higher (even if literally by pennies) for the first time in a week yesterday, however today’s European session has so far seen both WTI and Brent crude back under selling pressure, with the stronger USD combined with yesterday’s API Crude Oil Inventories showing a build in crude stockpiles of 1.9mln weighing on oil ahead of DoE inventories.
As for the RUB, things appear to have stabilized a bit even if the intraday gyrations remain, and the USDRB was trading a little below 68 at last check, while more and more brokers simply refuse to trade the Russian currency, in line with what was first reported here yesterday. One of the factors leading to the stabilization is that the Russia finance ministry announced it would start selling its own FX reserves on market leading to a brief ruble rally vs USD. Also, PM Medvedev added that order must be brought to Russian FX market, while Kremlin economic aide Andrey Belousov said that Russia was working to stop ‘bacchanalia’ on FX market, according to Interfax. In other Russian news, Sberbank will raise FX, ruble deposits rates starting tomorrow, while president Putin plans no ‘special statements’ on markets, Kommersant says.
Over in Asia, equities traded mostly higher as oil prices saw a brief respite from the ongoing downturn during yesterday’s session. The Nikkei 225 (+0.4%) snapped its 2-day decline as JPY weakened ahead of the Fed rate decision although at last check it has reverted to trading back around the 117 USDJPY tractor beam moderating the zero liquidity exuberance in S&P futures.
Elsewhere, the Shanghai Comp (+1.31%) touched a 4yr high led by financials and brokerage names, following reports that China may loosen capital restrictions on brokerages. (read “Chinese Investors Bet This Time Is Different as Stocks Surge“) Money market rates are also notably higher amid a liquidity shortage further stoking expectations of a PBoC intervention. The Hang Seng (-0.3%) fell on casino stocks weakness as Fitch said sees Macau gaming revenue negative in 2015 and reports of a possible China crackdown on Macau casinos. China’s central bank has issued short-term funds to some local banks to ease liquidity strains and has also renewed some banks medium-term lending facilities that have expired, according to sources familiar with the matter. (RTRS) This has prompted some analysts to suggest that this action reduces the probability of a RRR cut before year-end.
European equities trade in the red following from the negative Wall Street close as lower oil prices combined with the depressed economic climate in Russia weighs on stocks. In a relatively quiet session with all focus on the FOMC rate decision, position squaring has been observed boosting the USD-index back above the 88.00 handle with the market looking to see whether the Fed drop their ‘considerable time’ rhetoric. In Fixed income markets, Bunds have remained relatively flat due to a lack of major macro news.
Also of note, the Greek presidential vote begins today at 1700GMT/1100CST with the govt. expecting its candidate Stavros Dimas to receive at least 161 of 300 MP’s votes, short of the 200 needed to be elected but a basis for a coalition to work for final ballot Dec 29th.
Looking ahead, all eyes will be on the FOMC rate decision, also we get US inflation data with CPI expected to print -0.1%, while CPI ex food and energy are expected to rise 0.1%, below last month’s 0.2% increase.
Market wrap summary
European stocks drop lead by banks and industrial companies. Asian shares decline, U.S. stock index futures advance. Euro drops against dollar, WTI crude oil falls as Russia reiterates it will keep crude production steady. Fed to end 2-day meeting and economists expect it to drop a vow to keep interest rates low for a “considerable time.”
- S&P 500 futures up 0.6% to 1976
- Stoxx Europe 600 down 0.6% to 327.06
- US 10Y yield up 3bps to 2.09%
- German 10Y yield little changed at 0.59%
- MSCI Asia Pacific down 0.4% to 133.86
- Gold spot little changed at $1196.89/oz
Bulletin Headline Summary from Bloomberg and RanSquawk
- Dampened economic sentiment and a continued slide in oil prices weighs on European equities.
- USD-index strengthens as market participant position square ahead of the latest Fed policy announcement
- Treasuries decline, 10Y and 30Y yields retreat from YTD lows before FOMC statement and summary of economic projections at 2pm, Yellen press conference at 2:30pm.
- Fed seen likely to drop “considerable time” language, may address recent global market turmoil
- Russia struggled for a second straight day to reverse a rout in the ruble, with Finance Ministry selling its FX on the market; Sberbank, Russia’s largest lender, to raise FX and ruble deposit rates starting tomorrow
- Fallout from Russia’s crisis is spreading across markets: Pimco is facing mounting losses on its Russian bond holdings almost every bullish ruble option contract registered in the U.S. has been made worthless; and forex brokers in New York and London told clients they’re no longer taking ruble trades
- The Bank of Russia will probably intensify interventions and spend almost a sixth of its reserves ($70b) after its emergency increase of interest rates failed to stem the ruble’s worst crisis since 1998, according to a survey of economists
- The biggest causes for worry, according to SLJ Macro’s Stephen Jen, bigger than a recession in Russia or the oil-price plunge: the slowdown in China, which has already upended commodity prices, and likelihood U.S. growth will propel USD higher and suck assets out of emerging markets
- German govt to sell EU185.5b in bonds and bills in 2015, lowest level since 2002, Federal Finance Agency says in provisional calendar; may sell 30Y linkers for first time next year
- PBOC rolled over at least a portion of a three-month lending facility from September that was set to expire, according to a government official familiar with the matter
- A federal judge weighing whether an immigrant from Honduras should be deported said Obama’s executive order on immigration is unconstitutional and violates the principle of separation of powers
- Taliban militants vowed more strikes on Pakistan’s army if it doesn’t halt operations along the Afghan border, a threat that comes a day after the group slaughtered young students in one of the country’s deadliest attacks
- No IG or HY deals priced yesterday.
- Sovereign yields mostly higher. Asian stocks mixed, European stocks fall, U.S. equity-index futures gain. Brent crude falls 0.8%, trades below $60/bbl level; copp
er declines, gold little changed
US Event Calendar
- 7:00am: MBA Mortgage Applications, Dec. 12 (prior 7.3%)
- 8:30am: CPI m/m, Nov., est. -0.1% (prior 0.0%)
- CPI Ex Food and Energy m/m, Nov., est. 0.1% (prior 0.2%)
- CPI y/y, Nov., est. 1.4% (prior 1.7%)
- CPI Ex Food and Energy y/y, Nov., est. 1.8% (prior 1.8%)
- CPI Core Index SA, Nov., est. 239.485 (prior 239.162)
- 8:30am: Current Account Balance, 3Q, est. -$97.5b (prior – $98.5b)
Central Banks
- 4:30am: Bank of England issues minutes
- 2:00pm: FOMC seen maintaining overnight bank lending rate between 0% and 0.25%; release of summary of eco projections
- 2:30pm: Fed’s Yellen holds news conference
FX
In FX markets, AUD/USD initially reached June’10 lows of 0.8140 after tripping stops allied by the subsequent USD-index strength despite this AUD/USD has since come off worst levels. NZD was dragged lower in sympathy, further weighed on by comments from RBNZ assistant governor McDermott, who reiterated the exchange rate remains unjustifiable and unsustainable. Separately, GBP was relatively unmoved following the BoE minutes vote remained at 7-2 and a broadly in line UK jobs report. Elsewhere, Russian news agency Interfax reported that the Russian Finance Ministry would sell USD 7bln worth of FX stocks to the market, while the Russian government and Russian Central Bank announced that they have worked on packages of additional measures for the RUB.
COMMODITIES
In the energy complex, WTI and Brent crude remain under selling pressure with the stronger USD combined with yesterday’s API Crude Oil Inventories showing a build in crude stockpiles of 1.9mln. Looking ahead, the DoE Crude Inventories data release is expected to show a drawdown of -2.25mln/bbl. Elsewhere, copper prices traded lower overnight following the release of yesterday’s production figures from China which showed output of the red metal rose by 3.1% M/M to a record for its 4th consecutive month, while the benchmark China iron ore prices extended on its declines for the 8th day with prices near this year’s low
via Zero Hedge http://ift.tt/1wYDNFS Tyler Durden