Markets tentative ahead of FOMC decision

Wednesday, December 17, 2014

Despite the turmoil in the oil market and the worsening economic crisis in Russia, Asian equity markets managed to hold firm overnight, with major benchmarks in the region trading tentatively around their opening levels for much of the session. The cautious mood ahead of today’s FOMC rates decision, which will give investors their last chance to glean further insight from policymakers before the end of the year, saw the Nikkei 225 add 0.4% after heavy losses on both Monday and Tuesday. Yen strength in recent sessions has added further pressure to equity markets after intraday moves saw the currency strengthen to a four week high towards 115.57 before pulling back to end the session at 116.41, gaining 1.29% against the dollar on Tuesday. Activity overnight and early this morning has since seen the yen weaken back above 117.10 against the dollar as investors favour the greenback ahead of the FOMC meeting today. Market participants continue to shift capital out of riskier assets in favour of safe havens with yields on short term government bonds issued by the UK, Germany and Japan falling to fresh lows.

The rouble continued to trade under pressure early on this morning, holding on to yesterday’s close around 67.69 against the dollar but not before intraday dips saw losses extend as far as 73.00 before partially recovering. The ongoing currency crisis, which saw the rouble plunge towards 80.00 against the dollar yesterday registering a new record low, has been exacerbated in recent weeks as economic sanctions coupled with a rout in crude oil prices erodes confidence among investors. Last night’s surprise rate rise by the Russian central bank to 17% from 10.5% previously sparked concern among investors that policymakers were struggling to contain inflation risks as the rouble's devaluation continued. With the latest update from Russia’s energy minister, Alexander Novak, stating that crude output for the coming year would be similar to this year’s 10.6m bpd, matching OPEC’s stance of maintaining output to defend market share, we could see further investment outflows and rouble depreciation as oil fundamentals continue to deteriorate.

Three month LME lead prices fell to a 27-month low yesterday as manufacturing activity in China contracted for a second straight month. Lead prices closed 2.25 lower, ending the session at $1,920/tonne after HSBC’s manufacturing PMI reading slipped below the 50 point mark that separates expansion from contraction for the first time since May. The 49.5 reading was slightly below the 49.8 expected by market participants and signalled at the slowing pace of industrial growth with lead prices extending declines early on this morning towards $1,906/tonne, on track to close lower for a third straight session.   

JPY slips back above 117.00 after recent strength

 JPY Curncy Japanese Yen Spot 2014 12 17 07 27 12

RUB slide continues as investors pull assets

RUB Curncy Russian Ruble SPOT 2014 12 17 07 33 40

LME 3-M lead prices drop to a 27-month low

LMPBDS03 Comdty LME LEAD 3 2014 12 17 07 45 50

Events for today

0930

UK

Nov

Claimant Count

0930

UK

Nov

BOE minutes

0930

UK

Oct

ILO Unemployment Rate

1000

EZ

Nov

CPI

1000

EZ

Q3

Labour Costs

1330

US

Nov

CPI

1530

US

w/e

EIA Energy Stocks

1900

US

Dec

FOMC Rate

1900

US

Dec

Fed - Economic Projections

Topics: US Fed, PMI, JPY, LME, RUB, Lead
More from: Kash Kamal