Can markets scare Fed again in front of meeting?

December 17, 2014 03:13 AM
U.S. index futures rose, while the dollar pared gains and Treasuries trimmed losses after data showed the cost of living fell by the most in six years before the Federal Reserve’s policy decision. European stocks fell with oil and the ruble reversed a decline.

Standard & Poor’s 500 Index futures added 0.3 percent at 9:10 a.m. in New York. The Bloomberg Dollar Spot Index climbed 0.2 percent, while the yield on 10-year Treasury notes rose two basis points to 2.08 percent. The Stoxx Europe 600 Index dropped 0.8 percent, the seventh decrease in eight days. Oil headed for a five-year low, while the ruble strengthened as the country’s finance ministry started selling foreign currency.

More than $2.7 trillion was erased from the value of equities worldwide in less than a month, and a gauge of volatility across asset classes reached a 15-month high as oil sank to a five-year low. The Fed ends a two-day meeting today, with economists predicting that Russia’s currency crisis and plunging oil prices won’t stop policy makers from dropping a vow to keep interest rates low for a “considerable time.” Consumer prices in the United States fell by the most in six years on lower fuel costs, while inflation was at a five-year low in the euro area.

“We look for the Fed to drop the considerable period language and generally trying to be marginally less dovish,” said Richard Kelly, senior strategist at Toronto-Dominion Bank in London. “There isn’t likely a need for the Fed to bring up much regarding Russia outside the fact that it is unlikely to imply a significant impact on U.S. growth.”

Fed Watch

Futures on the S&P 500 expiring in March climbed, signaling the index will rebound after slumping 3.1 percent in the past three days. It closed at its lowest level since Oct. 27.

The Fed will issue its timeframe for raising borrowing costs with inflation below its 2 percent target as slumping oil prices damped inflation. The cost of living in the U.S. dropped 0.3 percent, the most since December 2008, after being little changed the prior month, a Labor Department report showed today in Washington.

The central bank will also assess the impact of slower growth in China and Europe on the U.S. economy at a time when debt concerns from Venezuela to Russia have raised speculation that global growth is at risk of being derailed.

FedEx Corp. dropped 4.5 percent after the company reported fiscal second-quarter earnings that fell short of analyst estimates.

Dollar Strengthens

The dollar strengthened against most of its major peers. It rose from its lowest level in four weeks against the Japanese currency, up 0.7 percent to 117.21 yen.

After a 1.7 percent jump yesterday, the Stoxx 600 resumed its drop as banks slid the most among 19 industry groups.

Royal Philips NV lost 3 percent after agreeing to buy Volcano Corp. for $1 billion to boost its growth in image-guided treatments of the heart and blood vessels. Shares of the U.S. company surged 55 percent in early New York trading.

Hermes International SCA jumped 6.1 percent as LVMH Moet Hennessy Louis Vuitton SA is distributing a stake in the French maker of Birkin handbags to shareholders. LVMH rose 1.2 percent.

Eighth Day

The MSCI All-Country World Index fell for an eighth day, its longest streak in more than two years. The gauge is extending its lowest level since Oct. 20. Energy stocks from the measure were the only ones rising today.

Oil futures traded near the lowest level since May 2009 as Russia echoed the strategy of the Organization of Petroleum Exporting Countries, which is refraining from curbing supply to tackle a global surplus. Output from Russia, the world’s largest crude producer, will be similar to this year’s 10.6 million barrels a day, according to Energy Minister Alexander Novak.

West Texas Intermediate dropped 2.7 percent to $54.44 a barrel in New York. Brent crude for February settlement fell 1.7 percent to $59.02 a barrel in London.

“When the members of the FOMC gather today for the last of the year’s meetings they will have to weigh up whether what they are seeing out there is the beginning of a real crisis or just a wobble,” said Anthony Peters, a broker at Swiss Investment Corp. in London.

Extremely Undervalued

After sliding as much as 7.7 percent, the ruble strengthened 3 percent against the dollar. The Russian finance ministry said in an e-mailed statement that the currency was “extremely undervalued” after a surprise 650 basis-point interest rate increase failed to stem the worst rout among global peers this year.

The dollar-denominated RTS Index added 8.2 percent after a 12 percent slump yesterday. The benchmark Micex Index slid 1.9 percent, taking its year-to-date retreat to 5.8 percent.

The cost of insuring against losses on Russian sovereign debt fell, with credit-default swaps on the government’s bonds dropping 24 basis points after 17 days of increases. Debt sold by OAO Gazprom, the world’s biggest natural-gas producer by output, slid for a 14th day.

The MSCI Emerging Markets Index was little changed after an eight-day drop. It closed at its lowest level since August 2013.

China’s benchmark stock index rose 1.3 percent to a four- year high on speculation the government will loosen monetary policy and ease capital requirements that may allow brokerages to boost margin lending.

The People’s Bank of China rolled over at least a portion of a three-month lending facility from September that was set to expire, a government official familiar with the matter said after the market close.

About the Author