From Russia to Yellen with Love

The FOMC began its two-day meeting on Tuesday and the market sent a powerful message as the Russia ruble continued to collapse. USD/RUB rose more than 23% at the highs before paring losses; amongst the majors sterling led and the Aussie lagged. Japanese trade date is next. Subscribers to our Premium Insights find a special edition on global equity idices, dissecting the 8 striking similarities the S&P500 has charted in the 2 months leading to the December high with the 2 months leading to the October 2007 high, including this week's confluence, indicated in the RED DIAMOND on the daily SPX charts. The Premium piece also gives insights on the Dow-30, FTSE-100, KOSPI 200, ASX 200 and OBX 30. All these are in the Special Indices Premium Insights.

Volatility remained at extreme levels as the market grapples with the infinite possibilities in Russia. USD/RUB rose as high as 79.38 then skidded back to 66 followed by another bounce to 71.

As the panic in Russia crested (for the day) there was a broader flight to the yen that knocked USD/JPY down to 115.58, which is close to the 38.2% retracement of the rally since mid-October. It bounced to 117.78 from there but then fell back to 116.34 as stocks plunged late in the day. The S&P 500 closed at the lows, down 17 points to 1972.

The twists and turns in the market were too frequent to detail in what is increasingly a sentiment-driven market. The fundamental headlines were a disappointing US Markit PMI at 53.7 vs 55.2 exp and a slightly soft housing starts report at 1.028m vs the 1.040m consensus.

Oil prices showed some life after Brent fell below $60. John Kerry had some softer words about Russia and that helped to turn around sentiment but later Kuwait's oil minister said OPEC leaders are in agreement not to meet before June.

With sentiment so delicate, the market is looking for a lifeline from the Fed but it's a tough decision on removing 'considerable time'. Throughout the Bernanke and Yellen Fed's, the best trade (but not the perfect trade) has been to bet the on the doves. One final data slice with CPI due tomorrow could tilt the balance.

But first, Japan is out with trade data for November at 2350 GMT. A key metric to watch is exports, which are expected up 7.0% but could be swayed by the weak yen.