Russian Central Bank's interventions rendered void by speculators pricing out of the market

Fundamental View

Today we have seen large movements in both direction across the majority of assets. Crude is more than 3% down on the session, now trading around the $54 handle. This has, to some extent allowed stocks to react to poor German PMIs; the headline Manufacturing PMI was higher but the Services and Composite were much lower than expected. This caused a push down in both the DAX and Estoxx, a brief move that has ultimately been reversed, given better than expected Eurozone PMIs followed. We also saw the German ZEW Expectations survey post a reading of 34.9, higher than the expected 20.0; this move was priced in in the rise in stocks since the lows set after the poor German figures. We also had readings from the UK with inflation data printing 12 year low. This sparked an initial sell off in GBPUSD to the 1.56 handle before retracing the move. This move also coincided with interesting technical developments in the currency space. The dollar index tripped through several technical levels and both the EURUSD and GBPUSD went on to make new highs, resulting in a 114 pip move from the lows to the highs in GBPUSD after the release of inflation data. The other interesting move came in the Ruble; since the surprise hike by the Russian Central Bank of raising rates from 10.5% to 17.0% we say the Ruble initially appreciate by 9% before now making new lows against the greenback for the rest of the session. It appears that the Russian Central Bank’s interventions over the past few weeks have been rendered void by the very speculators they were attempting to price out of the market.

Today’s View

This afternoon we have a limited supply of US data; we have US Housing Starts and Building permits at 1330 for November, likely to be lower than expected due to the seasonal drop in construction ahead of the winter period. We also have Manufacturing PMI for December, expected 55.3 with a previous reading of 54.8; this has been in decline since August this year but as we are still above the 50 handle we expect an in-line expectation to keep the dollar outlook buoyant. Tonight with have API Crude Oil Inventories without expectations, however the utility of this number is using it as a gauge for tomorrow’s weekly Department of Energy Crude Oil Inventory report. Given the price action in oil in recent weeks we will be monitoring these releases closely.

Alternative View

Be aware that the traditional correlations have broken down of late and that the strategies presented reflect current market fundamentals and assume data prints in-line with our expectations.