Week in Review (Dec 15-19)
The most notable events of the week were (1) continuing
pressure on crude oil (2) extreme volatility in the Russian Ruble and
(3) FOMC meeting.
The negative momentum in oil price continued as the OPEC (representing the producers) and the IEA
(representing the consumers) lowered their demand forecast for 2015. WTI fell steadily from ~$75 on November
26 to ~$54 by December 16. It tested the $54 level again on December 18/19 before
bouncing to $57 to close the week.
Russian Ruble came under pressure after the Central Bank
unexpectedly hiked the rate to 17% on December 16 after stopping currency
intervention on November 10. The volatility in the currency subsided
substantially despite disappointing end of the year press conference by
President Putin as the Finance Ministry gave support to the currency and the
Central Bank temporarily suspended accounting rules for companies with foreign debt.
This week's FOMC meeting, the last one for the year, was closely watched especially because the expectation was for the Fed to remove the word "considerable period” from the Statement in preparation for a hike around mid-year. Investors were surprised when that phrase stayed in the Statement but confused because they were not sure whether it had the same or a different meaning. The
vagueness of the Statement was somewhat clarified by the Fed Chair Yellen at her
post-FOMC press conference. She said unequivocally that the Fed will raise
interest rate in 2015 but not in the next 2 meetings unless the economy rolls
over unexpectedly. Stock markets, which had been under tremendous pressure
owing to the sharp fall in oil price and collapse in energy stocks rallied
after the Fed decision. By the end of the week, they were back within a striking
distance of all-time highs. Even lower guidance from FDX was not able to stop
the upward momentum. The best performing stocks for the week were mostly Energy.Volume on Friday was high because of Quadruple Witching.
Monday
- Japan, PM Abe won an easily victory in the snap election. The LDP and Komeito took 326 seats in the lower house, more than the 317 needed for a two-thirds supermajority but voter turnout was 52%, the post-war low.
- Japan’s Tankan large manufacturing index slid to 12 in the fourth quarter of 2014 slightly below market expected and prior reading of 13 in 3Q.
- China revised 2013 GDP by 1% to 3% while the PBoC said growth in 2015 could slow 7.1% from 7.4% in 2014.
Tuesday
- China HSBC flash PMI weaker: 49.5 vs. 49.8E.
- German ZEW current situation better: 10.0 vs. 5.0E.
- German preliminary composite PMI misses: 51.4 vs. 52.3E.
- Russian rubble under severe pressure amid 6.5% hike in the rate.
Wednesday
- Fed Chair Yellen was able to reassure investors at her post-FOMC press conference.
- Copper hit new cycle low (below 285).
- The Russian finance ministry announced earlier today that it will sell dollar cash in a total amount $7bn over an unspecified period, starting today.
- FedEx gave negative guidance.
Thursday
- Swiss National Bank introduces negative IR (-.25)
- German Dec expectations survey better: 101.1 vs. 100.5E
- Putin's end of year press conference
Friday
- BoJ Policy Statement: Maintains pace to increase monetary base at rate of ¥80T (as expected).
- German consumer confidence better: 9.0 vs. 8.8E.
- Equity volume was very high because it was Quad witching day.
