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World Markets Seek Safety as Oil, Ruble Plummet

Posted by Joseph Trevisani on Dec 16, 2014 10:20:00 AM

Crude oil prices plunged to a five year bottom, the Russian Ruble fell to a record low, equities around the world gyrated wildly and markets turned to traditional sources of comfort buying U.S. Treasuries and sending the Japanese Yen soaring. Into this volatile mix tomorrow’s Federal Reserve meeting brings the possibility of higher U.S. interest rates sooner than currently expected.

West Texas Intermediate, the benchmark for American produced crude oil, sank as low as $53.60 a barrel in early New York trading before rallying to just over $57.00 at the London close at noon. The equivalent European standard, Brent, touched $58.50, its weakest quote since May 2009 before regaining more than $2.50.  

The Russian Ruble seemed to be in free fall for part of the European session despite the central bank's defensive 6.5 percent rate hike overnight to 17 percent overnight. That is the highest official European interest rate since the European Rate Mechanism crisis in 1992.  

The Ruble had opened 62.4661 to the dollar but after trading in a relatively narrow band around 65.6000 for most of the European market the rate exploded higher to crest at 79.1688, its weakest on record. By early afternoon it had subsided to 67.9143. If it ends above 64.2372, yesterday's terminus, it will set another record close. 

Asian equities were largely lower with the Nikkei 225 index down 2.01 percent, the Hang Seng off 1.55 percent and the Indian Sensex 30 slipping 1.97 percent. The Shanghai Composite rose 2.31 percent on expectations for further government stimulus for the slowing Chinese economy. 

European stocks were generally higher, ending seven straight days of losses. The British FTSE 100, German DAX and French CAC 40 were up more than 2.0 percent and the Spanish IBEX 35 was not far behind at 1.80 percent. All the indexes had dipped into negative territory for prolonged periods. 

In the United States the major averages had recovered their poise by the early afternoon following large morning losses. At 12:35 pm the Dow was up 136 points at 17,343, having been down as much as much as 100 points and up as much as 247 points.  The Nasdaq Composite was trading at 4627 at 12:38 pm, after moving as far down as 4563 and as high as 4645.  The S&P  was up 15 points at 2005 in early afternoon, having visited 1976 on the downside and 2016 on the upside. 

Buyers flooded into the Treasury market, pushing prices rapidly higher and driving the yields on the generic 10-year bond as far down as 2.0098, the second lowest for this standard note since last June when the Federal Reserve first began hinting that its quantitative easing program could be ending.

And finally, the Japanese yen strengthened 2 percent against the U.S. dollar, at one point reaching 115.57, its best level since November 17th in spite of the overwhelming reelection of Prime Minister Abe in the weekend's election with his mandate to weaken the currency  in pursuit of a revival of the Japanese economy, 

In China, the manufacturing purchasing managers’ index from HSBC and Markit Economics fell to 49.5, stirring renewed concern about pace of the ongoing slowdown of the world’s second largest economy. It was the first time since May that the measure has slipped below the 50 dividing line between expansion and contractions. 

New statistics from Europe indicated that the manufacturing and service sectors on the continent barely expanded in December with growth moribund in the European Union’s two largest economies, Germany and France

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg





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