Subdued reaction of Cable to UK employment data

Fundamental View

Yesterday’s extraordinary session can be quantified against the two biggest movers. The first was the Ruble which has set in motion a chain of events which are crippling Russia as a nation. The Ruble moved 36% from high to low, with Russian nationals converting Rubles into dollars aggressively. Russia are also looking at capital controls to stop the rush to convert their holdings from Rubles into alternative currencies, a contingency tactic usually seen in the most distressed nations. A removal of sanctions will be Russia’s only saviour at this point but with the US ramping up their sanctions rhetoric, looking for Iran-style sanctions for Russia, only a complete reversal of Russia’s involvement in Ukraine can prevent these from being actioned. Although a removal of armed forces from Ukraine is the easiest solution for Putin at this point, it is highly unlikely that he will pull his forces out. Similarly to yesterday it is likely that the Ruble will depend heavily on the price of crude oil. If we see crude move lower then Ruble could be in for further turmoil ahead. We saw a build in API Crude Oil Inventories last night, coming in at 1900k. This outstrips the Department of Energy Crude Oil Inventory numbers, expected as a draw down. If the build in reserves is confirmed, we are likely to see risk assets react in accordance as it appears to be the lead indicator across the products.

Today’s View

This morning we saw UK employment figures hit the wires with the Claimant count at 2.7% and Jobless claims change at 26.9k against the expected drawn down of 20k. The unemployment figure was slightly higher than expected at 6.0% against an expected 5.9%. This resulted in a subdued reaction in Cable, unreflective of the data. This is similar to yesterday’s move in GBPUSD when we saw far lower than expected inflation negated as Cable moved higher on dollar weakness. This reaction implies traders are waiting for the Fed decision this evening, preferring to avoid extra risk before a possible monetary landscape change. The Fed are likely to be dovish and maintain the “Considerable Time” language, even with the strong data coming out of the US; Low inflation will maintain the dovish outlook on Fed policy and as Yellen prefers to keep dovish policy in place, any reason for her to do so will be acted upon. Before the FOMC we have the first round of Greek elections; we believe that Greek politicians will probably see the first round votes as a protest vote. By the 3 rd and final round of voting on the 29th December they will realise the ramifications of not putting through Samaras’ candidate and avoid the Snap election early next year which the opposition party Syriza are likely to win.

Alternative View

As the Oil data is released later in the US session please remain reactive ahead of this release as trades could be invalid before this release. As oil will be the main driver