Oil falls to yearly lows; Bounce in stocks fades

Summary:

• Oil and Oil.WTI have both dropped below 2018 lows

• US indices fall back after early gains

• More gains seen in the crypto space

• USD pulling back ahead of the Fed

• What to expect from the Fed tomorrow?

The crash seen in the price of crude oil in the past few months has arguably been the biggest story of the year, with the market tumbling by more than a third since the start of October. There’s been further declines today as US benchmark WTI has dropped below last month’s low and you have to go back to September 2017 to find a time when the price was lower.

US stocks had looked to recover from another big down day to start the week, but this bounce has fizzled out into the European cash close and price is back under pressure. Continued fears about the health of the global economy are weighing on sentiment and for the time being a strategy of selling the rallies appears to be working well.

After a bright start to the week there have been further gains seen in the cryptocurrency space. The capitalization of the whole cryptocurrency market is now up to around the $113 billion mark. The Japan’s Financial Services Agency (FSA) published on Friday a draft report determining new regulations for cryptocurrencies and initial coin offerings (ICOs). The report focuses, among others, on the issues connected with hacking incidents. Moreover, the document says that ICOs can be subject to various types of regulations. Furthermore, the Japan’s Financial Services Agency recognizes also significance of cooperation with self-regulatory organizations, as the document explains.

There’s been a little bit of softness seen in the buck today as traders look to position themselves ahead of the highly anticipated Fed rate decision tomorrow. On the data front there’s been some mildly upbeat news this afternoon with the release of the latest US housing data. Housing starts for November came in at a 1.26M, above the 1.23M expected and the prior reading of 1.22M. At the same time there was more good news from the sector as building permits also beat, with the reading of 1.33M comfortably above the 1.27M expected which was in line with the prior. This sector has seen some soft data in recent months and the latest readings will go some way to allay fears surrounding some weakness in housing.

The US Federal Reserve meets for the last time in 2018. This could be the last event of such high importance in December. Another interest rate hike is nearly certain, but this time investors want to see not “what” the Fed does but “how” will it do it. In this analysis we present our point of view on the meeting and 3 markets that might be affected: USDJPY, Gold and US500.