Dec 20, 2018, by Lorcan Roche Kelly
Oh well, Fed
Markets are nervous that yesterday’s Federal Reserve decision will lead to too much tightening from the central bank as Chair Powell said balance-sheet reduction will continue apace. Overnight, the MSCI Asia Pacific Index dropped 1.2 percent while Japan’s Topix index closed 2.5 percent lower, pushing the gauge into a bear market. In Europe, the Stoxx 600 Index was 1.1 percent lower at 5:45 a.m. Eastern Time as the region’s stocks matched global peers. S&P futures pointed to some relief as they were very slightly positive, the yield on the 10-year Treasury was at 2.765 percent and gold was higher.
The Senate passed a temporary spending bill last night which aims to keep the government funded until February in an attempt to put off a confrontation with President Donald Trump over funding for a proposed border wall. The House is set to vote early today on the measure, which is expected to pass after leaders from both sides signaled support. While the White House has not said whether the president would sign the bill, the administration seems to have backtracked somewhat from Trump’s comments last week where he said he would be proud to shut the government down over the wall issue.
European central banks
Investors were caught a little off guard by the Swedish central bank’s decision to raise rates this morning, the first move higher in seven years. At 7:00 a.m. the Bank of England will announce its latest policy decision, with no change in rates expected and no press conference from Governor Mark Carney. The Czech central bank is also expected to hold rates unchanged at 7:00 a.m. Elsewhere, the Bank of Japan left stimulus unchanged after its meeting overnight.
Oil falls (again)
Any hopes of respite for oil traders were dashed this morning when the commodity fell again. A barrel of West Texas Intermediate for February delivery dropped more than 1.8 percent to $46.32 by 5:45 a.m. while Brent crude was trading under $55. The latest selloff is less to do with the usual supply concerns and more with worries about whether the latest Fed move will choke global growth prospects. Saudi Arabia’s Energy Minister Khalid Al-Falih yesterday blamed a range of factors including dollar strength and investor speculation for the moves.
At 8:30 a.m. weekly jobless claims numbers are expected to show an increase to 215,000 from last week’s surprise low 206,000 count. The Philadelphia Fed December outlook is published at the same time. The U.S. November Leading Index is released at 10:00 a.m. The Treasury tests the post-Fed bond market at 1:00 p.m. with a sale of $14 billion of five-year notes. In earnings today, Nike Inc., Blackberry Ltd., and Walgreens Boots Alliance Inc. are among the companies reporting.