Market Insider

Oil pressure keeps rising on markets

Oil now barometer of global growth: Paulsen
Oil much higher next year: Trader
Oil bottom in? Technician says no

Markets could again be buffeted by year-end crosscurrents and positioning ahead of the Fed, but oil may have the final say Thursday.

There are just a few data releases Thursday, including initial claims and import prices at 8:30 a.m. ET. The federal budget is released at 2 p.m. At 10:30 a.m. the government releases supply data on natural gas, down 5.5 percent so far this week on warm weather. There is a $13 billion 30-year bond auction at 1 p.m.

"Oil is calling the tune, but the selling is very, very broad," said Art Cashin, director of floor operations at the NYSE for UBS. "The financials are down, and a whole variety of things. If it weren't for the two merger guys in the Dow (DuPont and Dow) the Dow would be down a lot more too."

A trader works on the floor of the New York Stock Exchange.
Getty Images

Cashin made the comment during Wednesday's trading, but all financial markets were focused on crude, which was higher early before ending at a new six-year low. West Texas Intermediate oil futures for January finished at $37.16 per barrel, down 35 cents. Since Friday, when OPEC chose to maintain market-based pricing, oil is down more than 11 percent.

"Bonds are moving on the risk on, risk off sentiment, which is coming from oil through stocks," said Ian Lyngen, senior currency trader at CRT Capital.

Read MoreCiti: Seven warnings signs for stocks in 2016

Brown Brothers Harriman's chief foreign exchange strategist, Marc Chandler, said oil was unusually influential in all markets, including currencies, but the tight correlation between all markets and oil should be short-lived. "It's gone through $40 so convincingly that a lot of people are talking about $25," he said.

Stocks swung wildly Wednesday with the Dow making triple-digit moves in both directions, as the dollar fell. The Dow ended the day down 75 points at 17,492, and the was off 15 at 2,047. Treasury yields finished lower, as investors bought bonds. The euro hit a high of $1.1041 against the dollar, its highest level since Nov. 2.

Read MoreWhat stock would you gift this holiday season?

"I'm not completely surprised to see these moves, especially as we move to the end of the year," said Vassili Serebriakov, currency strategist with BNP Paribas. "There's still a strong after affect from the ECB last week. The market got caught in positioning the wrong way, and it's probably still feeling the pain from that as well."

The European Central Bank last week disappointed markets with a less aggressive than expected easing package. The euro rallied hard against the dollar but gave back some gains after ECB President Mario Draghi sought to reassure markets.

"This is really a dollar move rather than a euro move, a sterling move, a yen move. I think it's position squaring," said Chandler. "They're long dollar and are getting out of dollar positions."

He said at the same time investors don't want to get short dollars, with the Fed expected to raise interest rates next week for the first time in nine years. But the dollar's move, thanks to the ECB, may make it easier for the Fed in its decision to hike rates, as it has been concerned about dollar strength. Chandler said it's now less likely the rate hike would trigger a "sell the news'" reaction in the greenback.

Read MoreWhy the US economy is 'fundamentally sound'

Traders will be also watching action in the final IPO of 2015. Atlassian will trade on the Nasdaq after pricing higher than expected. The Australian company raised $462 million worth of stock and established a market value of $4.4 billion.

In the bond market, Visa issued about $16 billion in debt in one of the biggest offers ever Wednesday, according to Informa Global Markets. Traders expect bond issuance to quiet down, as it does at this time every year.

Read MoreWhy I'm worried about a recession: Citi strategist

A contrarian trade on oil stocks