Wednesday had the potential to be a perfect storm for capital markets. The continued uncertainty over the Russian economy, alongside the Greek elections which many analysts saw yet again as a vote on Greece remaining within in the euro. Later on in the day on Wednesday we had the uncertainty of what message the Federal Reserve would want to send out along side the monthly rate announcement. Tuesday’s violent swings in asset prices would also not have inspired technical analysts with confidence for the day ahead.
The crisis engulfing Russia takes one back to the late 1990's as Boris Yeltsin's government was forced to default on the countries debt after a sharp fall in the oil price. During that period the FTSE 100 fell about 20% peak to trough in just over a month, managing to recover in a similar length of time as the dust settled. Should those who believe there is a greater conspiracy behind the current move in the oil price be correct, one can only hope the end game is not a repeat of 1998. Yesterday's modest recovery in the oil price at the peak of the strain on the Russian currency would lend credibility to this notion.
Ahead of the Greek vote investors were probably encouraged that the euro remained remarkably stable against the US dollar. Despite the remaining uncertainty as to the outcome of the elections, Greece’s benchmark ten year bonds rose as yields once again fell back below 9% by the end of Wednesday.
We often remind readers that the one thing that capital markets do not like is uncertainty, and there was a lot of speculation as to what the Fed might do with the word “ considerable”. Would they drop this term leading investors to believe after the recent improving US economic data that the Federal Reserve would bring forward expectations for the first rise in interest rates. In the end they kept the word in but slightly changing the emphasis. The market appeared to take this as confirmation that the first interest rate rise will not be until mid 2015. A day that started with much uncertainty ended with calm, the S&P climbed back over 2000, as some of the worst fears were not realised. Encouragingly Thursday sees equity markets starting on the same vein as Wednesday finished.