Daily Market Report - 14/12/2015

Sterling hit a three-week high against a broadly weaker dollar on Friday, recovering from a fall the previous day on Bank of England minutes that were more dovish than some had expected. Investors sold the pound on Thursday after the Bank warned of more barriers to growth next year, bolstering the view that UK interest rates would be kept at their record lows until at least the end of 2016. In the minutes from their latest policy meeting, rate-setters focussed on a renewed fall in global oil prices and slower rises in wages. They voted 8-1 again to keep interest rates at 0.5 percent, where they have been since 2009. 

The German economy is continuing to expand thanks to private consumption, with refugees providing a limited additional boost, the economy ministry said in its monthly report on Friday. Europe's largest economy was facing a slight headwind from the tough global economic environment but rising employment and wages along with the low oil price and the weak euro were helping. It said construction, especially of homes, would probably increase in the coming months while the industrial sector was beginning to overcome the weak patch it went through in the third quarter. "Overall Germany's economic output has probably grown in the fourth quarter," the ministry said. The economy expanded by 0.3 percent in the third quarter.

The Federal Reserve's December 15-16 policy review is this week. The focus is not on whether the central bank will raise interest rates we belibve this move is already priced in, but how quickly it will try to normalise monetary policy. The focus is now on the path of interest rates going forward, not whether there will be a hike this week. Several of the major global investment banks expect a 25-basis-point rate hike this week, followed by three hikes next year, bringing the target range for the fed funds rate to 1.00-1.25 percent by 

Investors sold the South African Rand and dumped shares in companies focused on South Africa following a reshuffle in the country's government on Friday. The Rand dropped 9 percent on Friday and the Anglo-African financial services company Old Mutua slumped 10.6 percent after President Jacob Zuma removed Nhlanhla Nene as finance minister in a move that shocked politicians and investors around the world. However, the South African rand was quoted 5 percent stronger in the Monday morning Asian trading session after President Jacob Zuma restored Pravin Gordhan as finance minister in a sudden U-turn.

Special Report - Oil - Brent Crude and WTI Distillates
Oil prices extended their free-fall on Friday, flirting with 11-year lows, after the International Energy Agency (IEA) warned that global oversupply of crude could worsen next year. Brent and U.S. crude's West Texas Intermediate (WTI) futures fell as much as 5 percent on the day and 12 percent on the week as mild pre-winter weather and a plummeting U.S. stock market added to the toll on oil prices. Oil traders and analysts alike have been perplexed by oil's decline since the 4th December meeting of the Organization of the Petroleum Exporting Countries which all but abandoned price support for crude by removing OPEC's production ceiling in an oversupplied market. 

Brent's session low was $37.36 - barely a dollar above the $36.20 hit during the financial crisis. If Brent falls below that level in the coming week, that will be its lowest since mid-2004, when it traded at around $34 a barrel. WTI's front-month settled in the $35 territory the first time since February 2009. The contract finished the session down $1.14, or 3 percent, at $35.62, after hitting an intraday low at $35.35. WTI's financial crisis low was $32.40 in December 2008. Friday's only positive news for oil was data showing U.S. drillers have reduced the number of oil rigs operating in the country for a 14th week out of 15, reaching the smallest number since April 2010. The market pared some losses on that.

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