Russia cements the risk off theme
City Index December 16, 2014 3:28 PM
<p>The risk trade is under pressure again this morning as markets trade in a volatile fashion, and liquidity remains at the typical year-end premium. The […]</p>
The risk trade is under pressure again this morning as markets trade in a volatile fashion, and liquidity remains at the typical year-end premium. The driver of the latest move has stemmed from Russia with the Central Bank hiking interest rates to 17% from 10.5% overnight. This being the largest single rate increase since 1998, when rates were over 100% and they defaulted on debt. The timing of the hike, one week following the CB’s usual meeting and a 1% hike at the time, coupled with falling oil and Western sanctions, suggests a country willing to forego growth for the sake of the financial system.
USD/RUB was initially trading 8% higher than pre-hike levels, but as Brent oil trades a fresh five-year low along with European bourses now all trading firmly in the red, it’s not surprising to see the market testing a Central Bank’s resolve as the rouble corrects the entire interest rate hike move as the chart below highlights.
Sterling initially saw marginal support this morning with the BoE stress tests revealing that only the Co-Operative Bank failed the tests. RBS and Lloyd’s evidently scraped through following their pre-emptive measures to shore up capital defences.
The CPI data then brought the proud pound back down to earth and close to a 1.55 handle as UK inflation slowed to 1% from 1.3% in October, revealing the largest decline since 2002. The a failure of the 1.5585 support level saw GBP rally back above 1.57 as the dollar continued to decline and BoE Governor Mark Carney reminded the UK that a lower oil price was positive for growth.
Supports 1.2410-1.2340-1.2300 | Resistance 1.2535-1.2600-1.2650
Supports 116.20-115.80-115.45 | Resistance 118.00-118.60-119.00
Supports 1.5590-1.5540-1.5460 | Resistance 1.5740-1.5785-1.5820
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