By Geoffrey Smith
Investing.com -- The Federal Reserve wraps up its last meeting of the year, retail sales for November are due. The euro and sterling both rise as the EU’s top official says she sees a path to a post-Brexit trade deal, and oil’s rally is stopped by a surprise build in U.S. stockpiles. Here’s what you need to know in financial markets on Wednesday, December 16th.
1. Fed meeting ends; retail sales due
The Federal Reserve winds up its last monetary policy meeting of the year, against a backdrop of low expectations for action, despite a visible slowdown in the economy under the influence of the pandemic’s latest wave.
The Federal Open Market Committee will make its decisions known at 2 PM ET (1900 GMT) as usual, with Chairman Jerome Powell’s press conference following half an hour later.
The FOMC will be able to factor the latest retail sales report into its calculations. Numbers for November are due out at 8:30 AM ET, and analysts expect sales to have fallen in month-on-month terms for the first time since April, by 0.3%.
2. Euro zone holds up in December; ECB lifts dividend ban on banks
The Eurozone economy held up better than expected in December, despite the spread of lockdowns across the continent to contain the coronavirus.
According to flash purchasing managers indices compiled by IHSMarkit, the level of activity will contract only marginally this month: the composite Eurozone PMI rebounded to 49.8, only just below the 50 level that typically separates growth from expansion.
The figures have been released a week early due to the Christmas holiday. As such, they barely take into account the hard lockdown in Germany that starts today, while the short-term outlook for the economy depends in large measure on the post-Brexit trade talks with the U.K.
In a separate development, the European Central Bank confirmed that it will lift its ban on bank dividends from December although it appealed to banks not to pay either dividends or big bonuses until September at the earliest.
3. The Santa rally is in as stimulus talks progress
The Santa rally looks to have begun, with U.S. stocks set to build on Tuesday’s robust gains when the markets open later.
By 6:35 AM ET, Dow Jones futures were up 88 points, or 0.3%, while S&P 500 futures were up 0.4% and Nasdaq futures were up 0.3%.
The market is being buoyed by signs of real progress in talks on a fiscal stimulus package after the first meetings in weeks on Tuesday between Senate Majority Leader Mitch McConnell and House Speaker Nancy Pelosi. McConnell said “significant progress” had been made in the course of the day, against a backdrop of reports suggesting that his suggestion to drop provisions on liability protection for businesses and support for state and local governments had been broadly accepted.
4. Brexit deal prospects lift GBP, EUR
EU Commission President Ursula von der Leyen said earlier she sees a “path to an agreement” in the post-Brexit trade talks with the U.K., sending sterling above $1.35 and the euro above $1.22 for the first time in over 2 ½ years.
Sterling was also helped by a composite PMI that indicated the economy is returning to growth in December, although the index level of 50.7 was below expectations.
Elsewhere, Prime Minister Boris Johnson resisted pressure to abandon his plans to relax restrictions on social gatherings at Christmas, which may soften the economic pain of putting the capital London into the highest tier of Covid-19 restrictions.
5. Oil consolidates after shock API inventory numbers
Oil prices consolidated overnight, torn between optimism over the prospects of a U.S. stimulus package and concern at a surprise increase in U.S. inventories last week.
The American Petroleum Institute estimated that crude stocks rose by nearly 2 million barrels last week, rather than the 3.5 million-barrel draw expected. The impact on prices may be more sustained if the government’s data confirm that at 10:30 AM ET.
By 6:30 AM ET, U.S. crude futures were up less than 0.1% at $47.66 a barrel, while Brent crude futures were essentially flat at $50.76 a barrel.