Europe
German and Italian markets are closed while there was little movement in the shares in the rest of Europe heading into the Christmas holidays.
There were some signs of life in UK markets after US surgical implants company Stryker Corporation (NYSE:SYK) was rumoured to be preparing a bid for UK medical device-maker Smith & Nephew (LONDON:SN).
Sceptics might suggest this is good timing in low liquidity markets to spread a bid rumour. The lack of liquidity means prices can jerk quickly higher without feeling the resistance from the normal number of sellers.
The deal would purportedly not be a tax-inversion deal because of the associated political pressure in doing so. Stryker are probably thinking that should political tides change, a restructuring towards tax inversion could be possible in the future.
Stryker must feel there are enough synergies between the companies that the deal is still worth doing without the tax advantages of an inversion. Stryker’s motives are likely also slightly defensive in nature since the deal follows another mega-merger between medical device-makers Medtronic and Covidien.
US
US markets look set to open slightly higher on Friday as the Dow Jones looks to maintain its grip on 18,000 with little-to-no data released before the early close of the NYSE and Nasdaq at 1pm EST.
The Dow managed its first close above 18,000 while the S&P 500 has had over 50 record closes this year with a week to go until the end of 2014.
US economic growth has accelerated, recording 5% growth in the third quarter. In 2015, the drop in oil prices could act to underpin US growth further.
A slowdown in European, Chinese and Japanese growth have been a risk-factor throughout 2014 and have often been the reason for corrections in the bull market. For the sakes of US markets, the drop in oil prices could also be important to lift growth internationally and minimise contagion risks.
FX
The US Dollar was slightly lower on Wednesday as a result of profit-taking from the gains made after Tuesday’s strong Q3 GDP revision to 5%.
The drop in oil prices on Wednesday had minimal impact on the Russian ruble which continued to strengthen but the Norwegian krone again came under pressure again edging back to the lows made last week.
Commodities
Gold and Silver were flat with no reason for safe-haven or inflation-hedge demand.
Oil has slipped a bit again on Wednesday but has managed to stabilise above the $60 per barrel mark in Brent crude. After OPEC decided not to cut production to sure up prices many oil ministers forecasted $60 per barrel oil; the result was that markets made a beeline for that figure and held there.
Increased oil production in the US is not expected to slow too much next year but “zombie” refineries who are able to slow refining at lower oil prices may mean slightly less makes it to the market as gasoline. Global demand is expected to slow next year alongside the European and Chinese economies but not to the extent seen in the financial crisis.
Oil prices are unlikely to rally straight back to $100 per barrel any time soon but equally it seems the 2008 low at $35 is not justified. Oil will sooner or later find a new equilibrium at lower prices, the base of which could be $60 or perhaps $50 per barrel.
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