While the last trading day of 2014 will be important if only to see if Dow 18,000 can be recaptured on what is sure to be the lowest volume in years, don’t expect much help from Brent which continues to slide and was down nearly 3% at $56.20 or WTI which is also flirting with the $53 level, down almost 2% overnight both set to cap the worst year for the commodity since 2008. Not much should be expected from Treasuries either, set to return over 6% in 2014 – the best performance since 2011 – crushing the latest hoard of bond shorts all of which got the Treasury move in 2014 epically wrong, which will close early at 2 pm. Which means that the HFT algos will once again be driven off the illiquid USDJPY correlation, where low volume will mean 5-10 pip moves today should be the norm, as well as European stocks, whose Stoxx Europe 600 Index rose 0.3% earlier on the latest round of jawboning by an ECB member, this time Dutchman Peter Praet, who said in an interview with German newspaper Boersen-Zeitung that lower oil prices increasingly risk de-anchoring inflation expectations, indicating that quantitative easing is becoming more likely.
In other words, the great crude crash, while completely ignored by the Fed may just be the scapegoat that launches European QE despite Germany once again opposing QE, when Merkel’s chief economic advisor Christoph Schmidt said he sees no need for ECB to buy sovereign bonds at this moment.
For now, however, the algos have latched on to the hope of ECB coming once again to the rescue even if the sudden political seachange in Greece has made outright QE increasingly more improbable, and with Draghi once again bringing up not only the bitter topic of a “complete monetary union” but also a “capital markets union”, it appears that Europe is once again stuck in that place where it found itself in 2011 and 2012 where in order for the ECB to continue printing money, peripheral nations need to prepare to hand over more sovereignty to the northern states. Considering the latest bout of nationalism and pro-independence moves across Europe, this could hardly have come at a worse time.
