Its statement to drop the pledge to keep rates close to zero for a considerable time. The feds twoday policy meeting begins tomorrow. The oil shock continues as crude Oil Prices Bounce back after volatile early trading. Brent had dropped to a 5 1 2 year low after the further price declines. Also in the headlines, opecs chief defending the decision not to cut the output. Wti is up by 40 cents only sitting at 58. 21. Last week 13 decline in oil prices sent waves throughout the Global Markets in the last five trading sessions. The yield on the tenyear tnote posted the biggest weekly decline in terms of a drop in terms of basis points since june of 2012. And the dow dropped almost 4 over the course of the week. That was the worst week since november of 2011. Weve been watching the equity futures this morning that look to be bouncing back, at least in early trading. You can check it out at this point, tripledigit gains for the dow futures up by 102 points. The s p 500 up by 11 points and the nasdaq up by 27. The market is clearly not concerned at this point about the situation that is developing in australia with a major hostage situation in the heart of sydney, australia. Matt taylor is joining us from there with the very latest. Matt . Reporter hi, michelle. Just over 12 hours since the gunman went into the lindt cafe in martin place in sydney right in the heart of downtown sydney in an area populated by a number of financial institutions. The Bank Head Quarters is there as well as the u. S. Consulate. All the buildings were evacuated earlier in the day as police surrounded the area. At first we did not know how many hostages were inside. Reports ranged from anywhere between 12 to 50 who is imagines. But we have now heard from authorities who believe the number is no more than 30. In fact, in the last few hours, it looks like that number could be closer to 15. But five of the hostages have emerged from the building. Its unclear at this point in time whether or not they escaped or whether or not the hostage takers did release them. Now, Police Officials here in sydney say that they are not speculating on motives behind this incident. And they are not confirming how many hostages are inside at this point in time. They do say that the individual who is holding these hostages is known to police. And negotiations are underway with that individual. We should also point out as well that a flag with arabic characters on it was put up in the window and a number of the hostages forced to hold that flag up at the front of the store in full view of all of the media that had gathered outside. The Australian Government saying at this stage it looks as though it could be a politically motivated incident. Back to you. Matt, have the terror levels been raised at in point . Was in of this expected in any way . Clearly not expected, but were they on watch for anything like this . Reporter yeah, about three months ago in september we saw the australian terror alert level raised up to the second highest notch. And this followed a number of Counter Terrorism raids that occurred right throughout some of australias biggest cities like sydney, melbourne and brisbane. That was on the back that government intelligence agencies had received information that terror groups were sympathetic to the isil movement. They could be planning to kidnap people on the streets of sydney, martin place is where this incident unfolded, and it was named in a particular spot in that intelligence. Kidnapped people on the streets and then with the threat of beheading them. Of course, we want to clarify that that is not necessarily the situation that is occurring right now, but authorities have been well aware that there may have been something of this magnitude that could unfold in the major cities here in australia. Matt taylor of cnbc australia joining us. Thank you so much for bringing us the news on that. Its not an isis flag, right . It is not an isil flag. It says it is generic. One guy, right . We dont know at this point. It just raises everybodys awareness. You never know how big its going to be. You listen to all the gnashing of teeth about the torture report, back then they thought it was attack. But back then we didnt know it was just 9 11. There could be a Nuclear Device and this was just the first of a series of waves. Someone was prosecuted for attempting to bring in a dirty bomb, remember . It did happen. Right. Well talk about oil once again dominating the market this morning. Opecs secretary general says the group can ride out a slump in prices. Despite the slide, the chief says the gulf arab nations will continue to invest in oil development. The secretary general argues that oil markets, i dont know about this, its not reflecting supply and demand. Fundamentals are fine being driven by speculators according to him. I dont know what this says about the fed. Not that i would ever say crude i was just going to ask you about crudeman. He wants rates to be set permanently at zero. He said 15 is off did you also hear him say im trying to bully them into not raising rates. He said that specifically. Given what he a lot of the stuff hes said in the past that makes no sense to me, you can argue that you dont want they have a dual map date. And if they have a 2 inflation target, and this actually lowers that to where we are not at 2 , you can make the case they shouldnt. And they already telegraphed that through the wall street journal. But do you want to raise rates when looking at if youre channeling your inner januariette januariety ettiette janet yelli watch this spiral all over the world, are you in a hurry to raise rates here . When you see jobs at 300plus, its hard to ignore. If inflation stays at low levels i saw one person who said in terms of black swans and not seeing a true black swan would be an analyst that predicted this. That would be a black swan. Someone that follows the industry that actually that would be the thing that is totally out of the question. That they dont raise rates next year . No, that someone that called the oil up. You werent listening to that, huh . We did have the and lianalys last week. He called for 60 oil back in september when oil was still in the 90s. But the true black swan was if we found an analyst that was bearish at 90 and said it could go to theres not a single one. We would have thought they were outliars. We would have mocked them. But it was barely holding 90 with all the geographic everything happening. The ebola story and concerns about nigeria as a result. And the oil story is filtering through every aspect of the Global Markets. Theres a story in todays wall street journal that reports there are now cracks in the 1. 3 trillion junk bond market. Prices have dropped 8 since late june with a third of that drop in this month alone. That puts the junk bond market on track for its worst and yule return since the financial crisis. Speaking of bonds, pimico is working to get business back on track after investors pulled tens of billions of dollars following the departure of bill gross. The pimco investor studying the firm with aggressive maneuvers, managers have said to buy more of certain hardhit investments l like mexican, italian and spanish debt. Dont miss the interview with bill gross live from the head carers from denver coming up at 2 00 p. M. Today. The shinzo abe coalition turning in a landslide win over the weekend in the election. But hes going to stick to his inflationary projection. And the boj Business Sentiment is getting weaker with twothirds of companies saying they view the coming quarter as not so favorable. A couple of currency stories grabbing our attention this morning as well. The indonesian rupiah dropping to the lowest level since 1998 today declining Risk Appetite and increase for demand and loan payments. Theres also rumors about a political change that didnt come about. The central bank intervening to support the currency there and the bonds. Russia, the ruble trading at record lows against the yen. 59. Holy smobs. I heard people say they think its going to 150. Youre nodding your head. In the shortterm . Within a year. Traders cite concerns about u. S. Sanctions over russia and ukraine. Lou said no contagent from oil, but you cant say the rupiah has something to do with oil as well. And the junk bond market, i guess its because a lot of the Companies Going to expiration are not investment grade, but also it seems to be saying that if you were thinking the Global Economy is going to go gangbusters, maybe this is a supply issue. But obviously theres something going on with demand. Yeah. Well check on the markets this morning. Well get a little bit of a snap back, but that was pretty ugly last week in terms of now were not at triple digits anymore. 88 on the dow. Almost 10 on the s p. And the nasdaq is looking at opening about 24 points higher from where our value was plus 7 and its up 31. But that gave back a pretty good chunk of not all the gains for 2014. But were not feeling as flush as we were, for sure. In europe, they still might be reacting to last week, but they are up a little bit. Germany dax, france, across the board with greece up the most. And the tenyear was below 210 over the weekend. Its come back a little now in terms of yield and is back at 213 or so. And as youll see if we ever change the boards, the things freeze up with these things. Anyway, the tenyear was at 213. And the dollar was strong. We have not seen a reversal there yet. And gold, there it is at 1. 24 an the euro and 1 gold at 1,200. A little rally since november. Last week we are hoping to see the slide in the mirror. The dow index now down 3 in this month. And its been about oil ever since thanksgiving. Wti crude lost 20 . And since peaking in june, its now down close to 50 . For more on what is next for all of these different things, were joined by mike ryan, chief investment strategist of wealth investment at america ubs. And chris wolf, chief Investment Officer of Portfolio Solutions for Merrill LynchPrivate Banking and investment group. Ill start with you, mike, do either one of you worry that were missing something in the oil story that is bad for Financial Assets . Because i dont know when commodities and Financial Assets became correlated. It should be we think they can move in opposite directions, but here we are worried about stocks because of oil. Well, first of all, we are never completely dismissing it. Theres linkage in anything that happens anywhere in the world today, it matters everywhere. But i want to be careful here, i dont see a decline in oil prices translating to a financial problem. In fact, i see this as i refer to chris views on this as well, i see this as positive in terms of the impact it has in terms of the u. S. Economy and the consumer sector. It doesnt mean winners across the board as the energy patch will be affected by it, and it will impact on the corporate profitability, but this wont be the kind of thing to undermine the financial markets. Chris, we know the oil sector has gotten bigger in this country over the last couple years, but still its relatively small for us. And you think about everybody else thats input costs go down and how the margins could be fatter. It just seems like it is overwhelmingly going to be a positive. There are two things here. It takes a while for the costs to filter in. In the meantime, Lower Oil Prices result in lower earnings for the Energy Companies. The first hit is to the s p. So we took our numbers down and the team did a couple bucks, about 124 for 2015 to reflect that. It takes probably six months to get all that lower oil price. Its the lower gas leap to translate all the way in. While its good, the time delay is missed by people as the first thing. The second is you brought up a point earlier, is this a supply or demand thing . Theres a lot of supply coming online. If you get into the story of fracking, you realize that all the oil coming online, theres still more coming. So our view is oil will stay lower longer and it translates into a tough year for 2013. I heard a statistic today, did you know texas was a country and would be the sixth largest producer of oil in the world, which stuns me. I knew its supposed to not be as big of a deal for texas with other things going on in the economy, but its going to hurt the economy. Yeah, im listening. Okay, we cut a couple points off the actual earnings number for the s p. But we know multiples contract when Interest Rates go up. Right . So if they go up slower, and if the economy is still recovering, people say, well, Interest Rates go up for the right reasons then thats fine. So we could have a better economy, but they might not go up because inflation stays low, which seems like you could get even expanding multiple or not a cop tra contracting multiple. We can see that globally with liquidity supplied by the u. S. , less this year, more liquidity and more from europe. But that is necessary to fight the deflationary trends. Well see multiple expansion because the high profitability in the u. S. , low inflation and ultimately the oil benefit at the end of the year is likely to result in pretty good Profit Margins for u. S. Companies and that supports multiple expansion. Mike, this could be a real difference in the last lets say this goes on for five years and the whole world gets a tax cut in terms of what it costs for power and energy and Everything Else. Is there anything else, another black swan out there that we are not worrying about . Are we overleveraged given the easing around the world or is there a problem with too much money flow . Thats what we used to worry about, but now we dont worry about it because of inflation. Well talk about leverage. I actually think we have seen over the course of the last seven years a deleveraging process. But we have seen the ongoing deleveraging in the Financial System, so from that perspective i dont see leverage as a problem. To the point you made about central banks, is there a risk given the washing of liquidity and the presence of large central banks, could that translate to a problem down the road . I would argue thats probably more of an inflationary issue. In terms of the energy patch and in terms of the supply, this translates to lower sustained prices. So i dont see that as translating into perhaps the kind of issue youre concerned about that it could undermine Financial Stability down the road. These are the things that as i say dont keep us up at night but they wake us up at night. Do they em mate from the likely geopolitical concerns we are seeing right now. And there could be embedded issues within the Financial System that we are not focusing on right now. To that point, chris, we are hearing more complaints that the Corporate Bond market is broken. That when we saw the tenyear yield drop 33 points in a nano second on october 15th, that was a single that something is wrong with the bond market. That if theres going to be a black swan, thats where its coming from. And we have seen weird stuff happening in the bond market last week. And some people argued that the equity fallout was related to that more so than oil. Are you hearing that from the bond side of the house at all . Two things about the bond market. First, the liquidity is not distributed evenly. The Federal Reserve and the kind of governments own large portions of the bond market so that makes it hard to think about where the liquidity is. Which makes it strange to ask about a lack of liquidity, but the fact of the matter is thats what happened in the Corporate Bond market. Exactly. The second is the bond market is a great place to finance all sorts of interesting things with low Interest Rates, in particular, shale fracking, et cetera. You have seen a lot of highyield deals. Which i think you guys mentioned going into the energy space. The reality is its not necessarily a bad thing if Oil Prices Stay low in these companies that are not doing well. But the spillover is from high yield. Yes, but the rest of the higher market is okay. Its the energy base, this will be more contained in our view. Is this something the fed would consider at all when thinking about raising rates . In our view is that they will consider some of it. The Lower Oil Prices is a longterm effect. We think its a very long build at this point. We just dont see any pressures up front. If you look at the jobs data, yes, theres more being created but not 70,000 to 80,000 jobs a year. They are much lower. So the wage pressure we see in the system are actually quite muted. Thats not necessarily inflat n inflationary. Thank you, mike and chris. The black swans, they got a bad wrap. They are beautiful but exist in the southern hemisphere. I dont really want to see them in the financial markets. Yeah, but how did that happen . Because that guy wrote that book. Because the guy wrote the book. One place they are prevalent is in australia where hopefully they have been doing fine for a long time. But really, they were like, were beautiful, were gracious, were not white but beautiful black swans. Now every time you talk about it, we are all dreading the black swan. And they are not that rare essentially, right . No, and they are beautiful and getting a bad wrap. But they are in the southern hemisphere. We are in the northern, am i right on that . You are right. You are good with geography. All right, thank you. When we come back, this mornings top corporate stories including the buyout for petsmart. And another day in court for apple. But first the fox sports news, congratulations to kobe bryant passing michael jordan. What . Taking third place among the top nba scorers. He now trails only Kareem Abdul Jabaar and karl malone. Because of pippen, he had somebody to pass to. Thats what phil jackson said. You cant be the only one shooting. Anyway. Welcome back to squawk box. We are going