US stocks remain under pressure while Oil drops further

Summary:

• US stocks remain under pressure as Philly Fed falls to 2-year low

• Oil makes new lows despite Saudi output cut talk

• SEK surges as Riksbank delivers rate hike

• Bank of England stay on hold, GBP little changed

• UK retail sales jump

US stocks remain under pressure today with the markets still licking their wounds after the US500 plunged to its lowest level of the year overnight after the Fed decision. The main disappointment comes in latest reading from the Philly Fed manufacturing index which fell to its lowest level since August 2016 in declining to 9.4. Given that this reading was 12.9 previously and the consensus forecast was for a rise to 15.1, it’s not hard to see this is a clear negative surprise.

There’s been some further selling seen in the energy markets today with the deep plunge which has consumed price in recent months showing little sign of letting up. Price has dropped below the weekly lows and moved beneath the $55 handle to trade at its lowest level since September of last year. There’s little by the way of any negative news to support the latest leg lower, with it seemingly more just a continuation of the downtrend in place - In the same way that during a bull market there doesn’t need to be positive news to account for every rally. If anything the news on the whole has been positive for crude prices of late and today we’ve had more attempted jawboning from Saudi Arabia. The kingdom has plans to curb its oil output by more than the amount committed to in the recent OPEC pact, according to documents seen by the Wall Street Journal.

The Swedish central bank decided to hike interest rate for the first time since 2011 despite subdued domestic inflation and ambiguous market expectations. The krona strengthened significantly (it is trading 1.8% higher against the USD at the time of writing) as the rate hike was not expected based on the Bloomberg consensus (based on OIS rates the likelihood had been around 30% hence SEK appreciation should not be surprising). The key interest rate was lifted to -0.25% from -0.5% and it was basically in line with the bank’s previous statements suggesting that a rate increase would take place either in December or February.

The Bank of England did not surprise market participants and chose to maintain the benchmark rate at its current level of 0.75%. The initial reaction seen on the pound was slightly bearish but the move was not substantial. Based on the recent BoE’s report regarding Brexit (the BoE presented the gloomy outlook if no deal is reached) today’s statement underlined that Brexit-related uncertainties have mounted. Technically the GBPUSD keeps trading within the bearish channel and bulls are grappling with 1.27. The break above the upper limit will be necessary to allow buyers to head north. As for now, room for declines seems to be contained to 1.21 unless the worst scenario (described by the BoE) materializes.

The latest read on consumer spending has shown a marked improvement with UK retail sales for November jumping far more than expected. A M/M figure of +1.4% was well above the +0.3% expected and the prior was also revised higher by 10 basis points to now stand at -0.4% for good measure. The month on month data is subject to pretty wild fluctuations and while the reading was no doubt boosted by one-off factors such as the Black Friday sales, this should be accounted for in the forecasts and it remains a pleasing beat nonetheless.