Markets mixed ahead of Fed statement - 17.12.2014

The US stocks fell sharply on Tuesday after one of the most volatile trading sessions since mid-October. Analysts pointed to combination of volatility in the dollar, gold and oil that caused the price swings in choppy trading. Investor sentiment was not helped also by disappointing housing starts and PMI data released on Tuesday. Today at 14:30 CET the CPI yoy data for November will be published in US. The tentative forecasts are positive with the core CPI, excluding food and energy prices, expected to remain unchanged at 1.8%. Consumer Price Index is expected to fall 0.1 percent in November after the index remained unchanged in October. We expect the positive forecast for CPI will contribute to further strengthening of US dollar ahead of the Federal Open Market Committee statement that will be released at 20:30 CET. With economic growth expected to accelerate next year and declining unemployment rate we deem it is likely that the Fed will issue a more hawkish statement without the phrase ‘considerable time’ and replace it with another form of forward guidance that is less prescriptive as to when the first rate hike may occur, which is believed to happen in mid-2015.

European stocks surged Tuesday as energy stocks rebounded after West Texas Intermediate oil prices swung higher late in the session and Russia indicated it doesn’t plan to impose currency controls. Russia’s central bank raised its key interest rate to 17% overnight from 10.5% late Monday, hoping to halt the ruble’s recent decline. Today at 10:30 CET UK Average Earnings Index is expected to be released with a forecast of 1.3 % increase against 1% in the previous period. Rising earnings index indicates labor costs are increasing which will contribute to increasing consumer inflation. Another statistic, Jobless Claims will be released with a forecast of slight decrease. We expect the improved earnings and employment figures will contribute to strengthening of the Pound. Japanese stocks rose on Wednesday on hopes of a continuation of the US Federal Reserve's dovish stance. Dollar fell against the yen, as investors sought the safety of yen over Russia and falling oil prices.

Oil continues falling. West Texas Intermediate for January delivery dropped as much as $1.32 to $54.61 a barrel in electronic trading on the New York Mercantile Exchange and was at $55.44 at 2:58 pm Singapore time. It gained 2 cents to $55.93 yesterday. Total volume traded was about 52 percent above the 100-day average. According to Russia’s Energy Minister Alexander Novak, next year output from Russia, the world’s largest crude producer, will be similar to this year’s 10.6 million barrels a day. OPEC has stated that it will not cut its output unless the US cuts its production first. The American Petroleum Institute in Washington reported yesterday crude inventories in the US, expanded by 1.9 million barrels last week. Iran is said to be offering shipments to Asia at $1.80 a barrel discount from a regional benchmark in January, the deepest discount in at least 14 years. With major producers like Russia, OPEC and US keeping production pace unchanged the price of oil will keep falling unless global demand for oil picks up.

Gold rose 0.3 percent yesterday ahead of the Federal Reserve policy meeting announcement. It rallied as much as 2.5 percent before pairing its gains as oil and US stocks whipsawed and investors started worrying that Russia may sell its gold reserves as ruble continues falling.