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Turbulence Sets Up Santa Claus Rally   December 15 - December 19
Fri, 19 Dec 04:26 PM EST/09:26 PM GMT
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The risk-off tone seen in markets last week lingered early this week with crude prices still sinking and the Russia's situation worsening. But by midweek authorities in Moscow took dramatic action to gird the ruble while oil prices, and probably more importantly the oil related stocks were helpfully stabilizing. Heading into Wednesday's FOMC meeting investor risk appetite appeared to be building; which was evident in narrowing junk bond spreads and the stabilization of several emerging market currencies, most notably the ruble. That afternoon the FOMC gave an upbeat assessment of the economy and replaced the "considerable time" component of its statement with a pledge to be "patient in beginning to normalize monetary policy." This cemented expectations that Fed remains on course for a mid-2015 rate lift off. Thursday saw the S&P 500 have its best day in more than a year and the Dow surged 400 points. US Treasury yields lifted post-FOMC and the curve steepened as the long end underperformed. There was some slightly better preliminary German and Euro Zone manufacturing PMI data, and the German December ZEW survey was much better than expected, providing a slight glimmer of hope for Europe as well. Stocks put in yet another V-shaped bottom, and for the week the DJIA rose 3%, the Nasdaq added 2.4%, and the S&P500 gained 3.4%, leaving the broad index back near all-time highs.

Oil seemed to find a short-term floor this week, as WTI pivoted around $56 for most of the week after marking a fresh multi-year low below $54 on Tuesday. Brent crude notably dropped below $60 but was back above the key psychological level by week's end. Nevertheless, crude is still on track to record its fourth consecutive weekly decline, and OPEC continues to signal it is comfortable with letting the rout run awhile longer. In public statements, Gulf OPEC members said they can wait for a long time for prices to stabilize. The Saudi Oil Minister said it would be difficult if not impossible for OPEC and Saudi Arabia to cut production, though he felt certain that the current oil market issues are "temporary" and caused in part by market speculators. ...
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