Another wild night in markets, and it is slightly to surprising to see equities post some decent gains. The Euro Stoxx 50 closed 2.3% higher with energy stocks leading the way, with some investors likely on the hunt for bargains in the still-negative risk environment. WTI seems to have tentatively steadied around $55.8, after starting the day once again on the back foot. It is now flat for the day. The S&P 500 is currently flat for the day as this note goes to pixel.

In currency markets, the USD was pushed back across the board in rather violent fashion, though with one very notable exception. Some of the USD’s losses have been pared, but the Bloomberg Dollar Spot Index still sits 0.4% weaker.

The mood was still very downbeat early into the trading day, with Russia front of mind. The 11% collapse in RUB on Tuesday prompted the central bank to slam its policy rate higher from 10.5% to 17.0%. This attempt to draw line under the RUB failed nearly as soon as the ink had dried. That currency is another 9% weaker today against the USD, and that’s a significantly better position than it was overnight. It has traded across 20 big figures in a single session.

Softer Chinese data would have added to fears about a malaise in global demand. The flash reading of HSBC’s China PMI dropped further into ‘contractionary’ territory than expected, printing at 49.5 in December after sitting on the break-even 50.0 number in November.

Such conditions were bound to make investors nervous. In FX, that was expressed by some messy unwinding of the crowded long-USD trade. The relentless grind lower in USD/JPY over the past couple of days accelerated through 117.0, and at one point looked to challenge.

The proclivity to sell USD no matter what was best seen in GBP, which tops the G10 leader-board despite a very soft inflation print. Core CPI inflation (ex. energy and food) decelerated to +1.2% y/y, having been expected to remain at +1.5%. But a knee-jerk drop lower in GBP was swiftly reversed and then some. GBP stands 0.6% stronger for the day at 1.5730.

European data was generally supportive of EUR’s lurch higher. Germany’s manufacturing PMI jumped back into positive territory, up to 51.2 from 49.5, a bigger improvement than expected. The ZEW survey continues to push higher following the October shocker, with the forward-looking expectations measure hitting 34.9 from 11.5, more than doubling the improvement to 20.0 expected.

Yesterday’s RBA Minutes contained little substantive evidence that the Board shifted toward an easing bias at the December meeting. However, there was some acknowledgement of market pricing implied such a shift. We anticipate some signalling of possible rate cuts at the next RBA meeting in February.

Coming Up

Tonight, it is all about the FOMC’s policy meeting. The statement will be released at 6am AEDT tomorrow, with a press conference from Fed Chair Yellen soon after. We expect that the “considerable time” phrase will be removed, and the median ‘dot points’ raised. But we are wary that the long USD positions might be in for further consolidation, even if the Fed simply delivers what the market expects. To instigate a significant USD rally, the FOMC will likely need to over-deliver.

Among the data due tonight, we would watch the BoE Minutes, UK employment, and US CPI.

Keep an eye out too for the results of the first round of Greece’s presidential election (by parliamentary vote) this evening. Should MPs fail to vote in favour of the Government’s candidate by the final round on 29 December, a general election will be called. A disastrous result for the Government tonight could weigh on risk appetite.

Overnight

On global stock markets, the S&P 500 was +0.00%. Bond markets saw US 10-years -5.91bp to 2.06%. On commodity markets, Brent crude oil -2.00% to $59.86, gold was -1.0% to $1,195, iron ore -0.7% to $68.58. AUD is at 0.8211

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