The period between Christmas and New Year’s Day brought lower volatility and lower volume of trade in the financial markets. Nevertheless, the market sentiment was bearish in the US – during the whole week, the NASDAQ fell by 1.5%, the S&P500 went down by 1.1% and the DJI declined by 0.9%. Perhaps, the latest news on attacks of Russian hackers during the race for the White House had an adversely impact on the market tone. As a result, the Obama’s administration imposed sanctions on 35 Russian diplomats. After all, Russia refrained from retaliation, while Donald Trump emphasized that it was the time to take care of more important matters. Famous billionaire will soon start its term of office, so the return of the uncertainty may adversely affect attitude of the US stock indices.

Despite bloody terrorist attacks, there were not many market emotions during the last days before Christmas. As a result, major global stock indices did not see any significant movements. In Europe, British FTSE250 increased by 0.7%, German DAX rose by 0.4% and French CAC40 soared by 0.1%. In the US, the DJI and the NASDAQ grew by 0.5% and the S&P500 went up by 0.3%. Investors focused on the Bank of Japan - the last of major central banks, which made a decision on the monetary policy. However, this time the BoJ did not make any changes. In addition, investors learnt a lot of data from the American economy. This turned out to be ambiguous.

After a revision of the monetary policy by the ECB, it was time for a long – awaited meeting of the FOMC. It took place last week and aroused a lot of market emotions. In line with market consensus, the interest rates were raised by 25 basis points. Nevertheless, the Fed announced another three hikes in 2017 (each of them by 25 basis points). The message turned out to be more hawkish than expected. As a result, dollar once again appreciated against other currencies. It should be noted that the Fed also tightened the monetary policy in December 2015 – it was the first hawkish decision for nine years. Moreover, another three or four interest rates hikes in 2016 were announced.

Certainly, the meeting of the ECB Governing Council was in the spotlight last week. The market consensus assumed that the bank would extend QE at 80 billion euros for another six months. In the meantime, the bond purchase program was extended for nine months, whereas its scope was cut to 60 billion euros per month. A reaction of the foreign exchange market was quite nervous. Originally, the decision was interpreted as the beginning of the QE limitation, whereas in fact, it turned out to be more dovish than expected. Over the next nine months the bank will supply a market with the amount of 540 billion euros – it will be more than 480 billion euros in six months.

Weekly comment MM Prime TFI  - December 12, 2016