UK & Europe
Unlike on recent occasions, a reversal of the decline in oil prices has lasted through the afternoon and relieved some of the pressure on stock markets. The bounce had its beginnings on Monday when crude oil finished flat after having being down over 2% during the day and continued through Tuesday.
Shares in Europe are seeing a rebound from multi-month lows. The FTSE 100 regained the psychological 6000 level. The German DAX has pushed back above 10,400, eclipsing Friday’s high and leaving it positive on the week.
A return to risk-on sentiment sent every sector into the green on the FTSE 100, giving the index its first positive day in nine.Old Mutual PLC (L:OML) was top riser as investors continue to reprice the level of stability inside South Africa after the appointment of Pravin Gordhan as finance minister.
Sainsbury (L:SBRY) was leading the supermarkets sector higher after the latest set of Kantar sales figures showed it was the only one of the top four to see growth in sales and market share over the past 12 weeks. The results for Tesco (L:TSCO), Asda and Morrison Supermarkets (L:MRW) were less favourable with falling sales and losing market share to German discounters Aldi and Lidl, who both saw double-digit sales growth. Sainsbury’s performance has shown there could be light at the end of the discounting tunnel for the big four, helping Tesco and Morrisons shares rise in unison.
Royal Dutch Shell (L:RDSa) and BG Group (L:BG) shares were higher alongside the price of oil but gains were limited by increasing concerns over viability of the merger at sub $40 per barrel oil prices. The feeling is that the majority of shareholders will vote for the deal to go ahead at the beginning of next year. However the idea of postponement or renegotiation could gain popularity if the price of oil goes much lower, bringing down the value of BG’s assets.
US
US stocks opened higher on Tuesday as oil prices stabilised on the first of the Federal Reserve’s two day policy meeting.
The rally in stocks is supported by the idea that the Fed will accompany the rate raise rise with a dovish statement and “dot plot” to support the message that rates will rise gradually. Lowering the dot plot to indicate a slower pace of rate rises would be at odds with the Fed’s belief that the economy is on track to meet its 2% inflation target. It seems more likely the Fed would want to demonstrate faith in the economy through a hawkish hike than appease markets with a dovish hike.
Monday’s oil price rebound coincided with the Dow Jones Industrial Average narrowly avoiding a two-month low and a double top price pattern that could have triggered further declines towards 16,000.
FX
The US Dollar was mostly stronger on Tuesday after the core CPI rose 2.0% year-over-year, removing the final barrier to a Fed rate rise on Wednesday. The Empire State manufacturing index was -4.6%, better than the -5.7% expected and the -10.7% reported last month
The euro has failed to make much headway beyond the sudden gains reached during the last ECB meeting. There was a small bounce following a better than expected German investor confidence survey but EUR/USD stalled at the 1.10 handle and gave back gains.
The British pound rose against the euro after UK inflation rose again in November for the first time since July. UK CPI rose 0.1% year-over-year with core prices rising 1.2%.
Commodities
Oil is seeing a technical rebound as shorts cover at the 2008 lows and ahead of the Fed meeting. News that the US could be set to allow unlimited crude oil exports is if anything a bearish development for the price of oil, though OPEC has said it does not foresee any impact from US exports on prices.
Gold prices are travelling in a volatile sideways channel with a downward bias heading into the Fed meeting.
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