Article / 15 December 2015 at 8:02 GMT

Morning Markets: Fed can't repeat September fiasco

Former managing editor, / Saxo Bank



  • China: Flash manufacturing PMI (0145 GMT; already published)
  • Spain: CPI (0800 GMT)
  • UK: Monthly inflation (0930 GMT)
  • UK: Producer prices                                                (0930 GMT)
  • Germany: ZEW indicator of economic sentiment (1000 GMT)
  • US: CPI (1330 GMT)
  • US: New York Fed Manufacturing Survey               (1330 GMT)
  • US: NAHB housing market (1500 GMT)
  • US: API weekly stocks (2130 GMT)

The US Federal Reserve will move ahead with its much-trailed interest-rate hike tomorrow despite the alarming slump in oil. European benchmark Brent "enjoyed" some brief respite overnight bouncing off a session low of $36.33/barrel but is within touching distance of the 2008 lows and from there, the 2004 low of $27.91/b is on.

With some 3 billion excess barrels of oil doing the rounds, any thoughts that the oversupply might begin to rebalance by the second half of 2016 are starting to look optimistic and it may not be until 2017 that the fundamentals move into some kind of equilibrium again.

As if that weren't enough for the Fed to think about, equities in Europe took a hammering Monday and while there was a very late rally in US equities, the commodity rout that has seen oil down some 12% since Opec decided not to cap supply at its December 4 meeting leaves overall sentiment still gloomy. Asian equities, Australia and the Nikkei excepted, also rallied, but again from a low base. 

Throw in the Third Avenue fallout, which is threatening to go viral through the junk bonds segment, and China's yuan devaluation, and the case for the Fed's step-by-step approach is virtually set in stone for tomorrow's summit. Hike it will — the ensuing mayhem in the market if it didn't does not bear thinking about after September's retreat — but it will come with a bedtime story, a cup of soothing hot milk and perhaps only a gradual withdrawal of that medicine.

As we move into the meeting countdown, EURUSD is trading well above 1.10 and USDJPY is under 121. Everyone's nervous. None more so than oil bulls and those markets that rely on the black gold. 

Market signals

Asian session

  • Shares headed sharply lower in Tokyo in cautious pre-FOMC meeting trading
  • The Nikkei 225 closed down 1.68% at 18,565.90 points
  • Shares edged lower in Shanghai on subdued pre-FOMC trading
  • The Shanghai Composite was down 0.14% to 3,515.76 at 0625 GMT
  • Oil rebounded after dipping below $35/barrel for the first time since 2009
  • Futures touched $34.53/b in New York, the lowest since February, 2009
  • ANZ-Roy Morgan shows Aussie consumer sentiment index up 4.7% on year ago
  • Iron ore rebounded for first time in 12 sessions, but stayed below $US40/tonne
  • Overnight copper was down 0.5% while nickel finished up 0.9%
  • Australia's 2015-16 budget deficit worsened to $37.4bn from $35.1bn forecast in May
  • Shares traded flat on the ASX after giving up early gains
  • The S&P/ASX200 closed 0.26% lower at 4,915.70 points

Forex ahead

  • The AUD edged higher on upbeat RBA minutes; it was worth $0.7255 at 0519 GMT
  • NZDUSD breaks 67.90 level with 68.80 in view
  • Dollar on the backfoot against major pairs ahead of FOMC
  • EURUSD threatening towards 1.11/50 with path to 1,15 potentially opening
  • EURUSD one-month at-the-money vols sliding towards 10%
  • Overnight EURUSD vols at 14%
  • USDZAR one-month atm vols spike to 24%

From the Floor

FOMC mode. "Stay on your toes, there are nervous markets across the board", says Hardy.

Touching distance. "We nearly got that 2008 low yesterday on Brent — we were within a few cents of $37.20/b", says Hansen.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Continuing soft US inflation numbers won't help the policy hawks' case for an interest-rate rise, says James Picerno.

Aussie outlook
The outlook for AUDUSD is confused, and today's upbeat RBA minutes proved to be a key focus for the currency, as predicted by the Saxo Capital Markets (Australia) team

Baby steps on debt deal
Greece's left-wing government has taken its first reluctant steps towards privatising state assets, but there's much more to do, and protests aplenty are likely in 2016, Stephen Pope predicts.

Trouble in junk land
Asset management firms with junk bond portfolios are under pressure, with energy and mining debt weighing the heaviest, says Saxo's APAC sales trading team

Too tame for Bond
Michael O'Neill writes that New York's FX markets have been stirred, not shaken, pre-FOMC.

Pay the price
Yet another high profile fund closure this week has highlighted how easy it is for fund managers to close shop without paying a penalty. Time for a New Year resolution, says Peter Garnry.

Fear and loathing
Risk-off is exerting its baleful influence through forex markets and with the ECB having already ruined the central bank divergence trade, John J Hardy examines a China move that might give the US Federal Reserve pause for thought before Wednesday's big decision.

There is absolutely no end in sight for oil's turn to the darkside and with Iranian barrels soon to come online, the 2008 lows are most definitely looming, writes Ole Hansen.


 There's plenty more in the pipeline with Iranian oil on the way. Photo: iStock

Morning Markets goes out on the TradingFloor platform at 0800 GMT, Monday to Friday.
Click here
to make sure you're up to date with the latest developments.

tradingwithapro tradingwithapro
This comment has been redacted


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail