Oil prices have continued to slide. Brent briefly traded below $50. WTI is below $48. Both have fallen about 10% this week. Prices are stabilizing in late morning in Europe. However, unlike yesterday the fall in oil prices is not sending stocks or core bond yields lower. The MSCI Asia Pacific Index was flat, while the Dow Jones Stoxx 600 in Europe is up 0.5%, near midday in London. All of the main industry sectors are higher in Europe, even energy.
US shares are trading higher in Europe. German, French, US and UK benchmark 10-year yields are 1-3 bp higher. Spanish and Italian yields are slightly lower. Greek bonds remain under pressure, and 10-year yields are at new highs for the move, pushing through 10% for the first time since September 2013.
The dollar itself is broadly higher, and North American traders are likely to follow suit. The euro, Swiss franc and sterling have made new lows while the greenback was bought in Asia against the yen to return to the JPY119.25 area. The US reports the ADP employment estimate, which will steal some thunder from Friday's official data. There is some concern that the energy sector job losses will weaken the US labor market. It is important to keep it in perspective. Employment in the energy sector accounts for less than 1.5% of US jobs. The US will also report the November trade balance. Here there is a bit of a tug-of-war. Growth differentials would be expected to widen the deficit while the decline in oil prices pushes in the other direction.
Later in the session the FOMC minutes from the December meeting will be reported. We argue that the FOMC minutes have a high noise to signal ratio. Policy signals are clearest from the Fed's leadership, Yellen, Fischer, and Dudley. The instrument that best expresses their views is the FOMC statement. The minutes obscure the signal. Recall that there were three dissents at the December meeting. The dissents are peculiar for two reasons. First, the dissents are not like they are at the BOE, where two members of the MPC have voted in favor of immediate hikes. Rather the dissents at the Fed are over how future guidance is stated. No one, including the so-called hawks, have dissented in favor of an immediate hike in rates. Second, the three dissenting regional presidents have indicated intentions to resign in the coming months.
