Making plans for December ? Better not make too many ......

Tuesday 24th November 2015

Making plans for December ? Better not make too many ......

Ref : "Expensive Swiss Franc tests central bank" , the Financial Times, p.30

Anyone hoping for a gentle winding-down period before the Christmas break will need to think again  --  December is going to be chock-full of announcements and events that could have profound effects on markets. They'll certainly be getting traders' full attention , and it might be worthwhile reminding ourselves of the timetable for the most crucial :

Dec 3rd :

European Central Bank meeting and announcement on monetary policy : despite some recent data showing marginally better-than-expected growth and sentiment, the Eurozone still has plenty of excess capacity and is showing no signs of a pick-up in inflation. In these circumstances it would now be considered a major surprise if the ECB did not ease monetary policy still further, either by cutting its headline deposit rate ( already at minus 0.2%), or by extending / expanding its bond-buying (QE) programme, or both. Failure to act would surely hit European bonds and stocks, and give an unwelcome boost to the Euro.

Dec 4th :

OPEC meeting in Vienna : the last 24 hours has seen something of a rally in oil prices after another torrid period which saw West Texas Intermediate crude (WTI) trade down through $40. Just a "dead-cat bounce" ? Market too short and vulnerable to short-covering on any mildly bullish news ? Talk from the Saudis about stabilising prices was taken as just that, and now news that Turkey has shot down a Russian jet brings geopolitical tensions into play , the effects of which are unpredictable and could be significant. Be a little cautious of over-reacting to Saudi comments, though .... anyone would talk the market their way if they could but action will required. In a Bloomberg survey of 30 analysts , not one thought that Saudi was likely to change from its current strategy. The consensus was that whilst it was undeniably coming at a cost, the plan to win back market-share by putting higher-cost, non-OPEC producers (particularly US shale) out of business was actually working. "No change" would not be welcomed by some OPEC members that do not have the kind of reserves to withstand these low prices for too much longer, particularly a desperate Venezuela.

Also Dec 4th :

US November Employment data : absolutely crucial with the Fed's rate decision in mind  --  see Dec 16th below.

Dec 10th :

Swiss  National Bank monetary policy meeting and announcement : it may have been largely overshadowed by the forthcoming meetings of its Eurozone and US equivalents, but by this time the Swiss National Bank may have a real issue on its hands. Switzerland is amongst the most open and export-driven of economies, and therefore is seriously undermined by a strengthening currency. If the ECB decides to ease policy on Dec 3rd, should the SNB follow suit  in order to stop the franc appreciating? If so, how best to do it ? Interest rates are already at minus 0.75%, which has certainly encouraged investor outflows and therefore weakened the currency, but can you keep cutting further into negative territory without distortionary side-effects, as the SNB fears ? The other issue that it will have to consider is the effect of a rate-rise by the US Fed less than a week later : on the face of it, such a move should encourage the Swissie to fall against the dollar, which would be just fine for the SNB. But if the Fed move provoked the kind of market turbulence that some fear, we could see "safe-haven" buying of the Swiss franc which would be much less welcome.

Dec 15th/16th :

The US Federal Reserve's Open Market Committee's decision on rates : The big daddy of them all, and we note that overnight the probability of a rate rise as implied by futures markets moved above 70%. Frankly, it's amazing that it's taken so long to get there and the only surprise is that it's not higher. It would take either a catastrophically bad Nov Employment number (see above) or some sort of market meltdown for the Fed not to move this time (if it wanted to maintain any credibility, that is). The Fed Funds futures may still suggest there's a chance of the status quo, but most of the analysts seem to agree that it's a foregone conclusion. In fact, the talk has largely turned to how steep the course of rate-rises will be, and of how far they'll go. "Gradual" is the Fed's watchword on that front, as well it might be : so far global markets have taken the prospect of a slow and gentle path of tightening in their stride (relatively speaking), but few would believe them robust enough to withstand the threat of something much more aggressive.