Volatility was the word of the day as rouble crumbles

Oil appeared to take its first major victim today, as the Russian rouble collapsed under the vice-grip of plunging Brent Crude and continued EU sanctions.

After the hurried, and seemingly unwise, decision by the Russian central bank to hike interest rates to 17%, the rouble looked set to steady. However the currency then went wildly off-script, and reached its worst ever price against the dollar at 80 roubles per greenback. Whilst the rouble has now steadied to around 73 per dollar, this is still 13 dollars above the levels the USD/RUB was trading at pre-hike. The Russian central bank’s decision, which looked hurried before this drop, now looks disastrous, with an increasingly desperate economic situation arising in the country.

Whilst the rouble spent the day in the economic limelight, Brent Crude oil never fails to disappoint, and spent the day below the $60 per barrel mark at around $59. The world’s constant awe at oil’s decline is surprising; with IEA and OPEC figures suggesting that oil over-production and under-demand is as bad as feared, it is difficult to imagine an unassisted, and more importantly, sustained rally for the commodity. It remains to be seen how much collateral the world is willing to accept before stepping in to help oil, with the Russian rouble as the first major casualty in this oil price war.

With the rouble and oil miserable bedfellows, the world struggled to decide on its reaction. The FTSE in particular spent the day fluctuating around the 6180 mark, largely settling on a loss for much of the day. The UK’s own economic situation wasn’t troubling, with CPI falling to 1.0%, and RPI down to 2.0%, meaning that the FTSE could not maintain any of its minor gains as the day went on.

With Russia’s situation worsening, a relatively strong round of numbers failed to provide much hope in the Eurozone. Despite the German ZEW economic sentiment being 31.8, nearly 3 times the previous month’s, and much higher than forecast, as well as a positive flash manufacturing PMI figure, the DAX failed to generate any bullish sentiment this Tuesday. In part, the German index was hampered by dismal figures from the rest of the Eurozone alongside the implosion in Russia and the economic pest that is Brent Crude oil.

Finally, this time last week, the idea that the Dow Jones would be hovering just 100 points above the 17000 level would have been laughable. The US index was almost guaranteed to reach the big fat Christmas present of 18000 before the end of 2014. Now the US markets are struggling in exactly the same way as its European and Asian counterparts, with home-based economic news being shut out by the macro-economic global picture.

What didn’t help the Dow et al. today was disappointing building permits, housing starts and flash manufacturing PMI figures, alongside a dollar that, whilst soaring against the rouble, slipped against the yen to 116.5, its lower figure in a month. However, in the end, these figures are relatively unimportant at the moment; yesterday saw a very positive round of numbers from the US, numbers that couldn’t penetrate the worldwide malaise pushing indices lower.