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.
