Weekly Market Review — December 21–25, 2015
Main Events of This Week – Publications of GDP in the United States, Great Britain and Canada
Almost all the major currencies showed a decline at the end of the week. The largest decline against the US dollar was the British Pound (–1.99%), followed by the Canadian dollar (–1.33%), the Euro (–1.05%), the Swiss Franc (–0.96%) and the Yen (–0.30%). The Australian dollar finished trading almost unchanged (–0.03%). The New Zealand dollar (0.42%) showed the only growth. The announcement of FOMC Interest Rate Decision was undoubtedly the main event of last week. The US regulator decided to start normalizing monetary policy and increased its basic interest rate by 25 basis points, from 0.25% to 0.5%. However, this move didn’t cause any violent reaction from the markets, as it was for the most part already taken into account. All market participants’ attention was focused on the accompanying statement and a following press conference by Fed’s Chief Janet Yellen. She noted that the pace of further rate hikes would depend entirely on the incoming economic data and that they will be gradual. However, it did support the US currency. This week the number of important economic statistics will be limited. On Tuesday at 13:30 (GMT) markets expect the release of US GDP. On Wednesday at 09:30 (GMT) the UK will report on changes in GDP in the final assessment, while a similar report in Canada will be published at 13:30 (GMT). Durable Goods Orders as well as Personal Income and Spending in the United States will be published at the same time. On Thursday at 23:30 (GMT) Japan will report on changes in consumer prices.
Main US Stock Markets showed a positive trend in the first half of the trading week, driven by the expectation of the announcement of the results of the FOMC Meeting. After the result of the meeting become known and turned out to be just as expected, Stock Markets showed strong growth, caused by the fact that the accompanying statement mentioned that the pace of the next increase will be more cautious and moderate. However, the appreciation of the US dollar, as a result of increased rates, had a negative impact on the dynamics of the Stock Markets, which in the second half of the week started falling. Falling oil prices also negatively influenced Stock Markets. So the main indices finished last week with mixed dynamics: Dow down by 0.43%, S&P grew by 0.14%, while NASDAQ rose by 0.17%.
European Stock Markets were repeating the dynamics of their American colleagues. So, oil prices, which fell to seven-year lows amid oversupply, put significant pressure on stocks in Europe on Monday. The focus of investors was also on the economic data from the region. The main event was, of course, the announcement of the US Federal Reserve meeting outcome on Wednesday. Stock Markets were relieved as in the accompanying statement the Fed said that further increases will be modest and depend on general inflation. However, at the end of the week European Stock Markets fell slightly, as the appreciation of the US dollar has had a negative impact on the stock market.
During this trading week gold prices showed the greatest change during the last eight years, falling more than $20. However, by the end of the week gold has shown only a slight drop of $8. The largest drop of 1% was registered on Thursday, the second day after the announcement of the outcome of the US Federal Reserve’s two day meeting. In the short term, the gold market expects to fall to new multi-year lows against the strengthening of the US currency. According to most analysts, the gold market may fall to $900 per ounce, and even lower as investment demand for the precious metal drops when rates are rising as it does not bring interest income. Given the fact that the Fed has stepped on the path of monetary tightening, the pressure on the gold prices will only increase.