MARKET UPDATE: GLOBAL EQUITIES UNDER PRESSURE AS FED RAISES INTEREST RATES

LAST WEEK – KEY TAKEAWAYS

US: FED INTEREST RATE DECISION THWARTS SEASONAL RALLY

• Global equities fell following the Federal Reserve’s decision to raise US interest rates by 25 basis points at its final meeting of 2018;
• The Fed indicated that there may be fewer interest rate hikes next year, but the unwinding of quantitative easing would continue;
• Concerns about a US government shutdown also hovered over markets, as President Donald Trump said he would veto a funding bill if it did not include money for his wall along the Mexican border.
• Omnis view: The Fed’s rate hike put an end to any lingering hopes of a seasonal rally. Even though the pace of monetary tightening should slow in 2019, the dovish tone the markets expected was not forthcoming.

FEDERAL RESERVE’S REVISED FORECAST FOR INTEREST RATES FOLLOWING ITS DECEMBER MEETING (SOURCE: WWW.FEDERALRESERVE.GOV)

UK: BANK OF ENGLAND LEAVES RATES UNCHANGED

• The Bank of England (BoE) decided against raising interest rates followings its meeting on Thursday;
• The minutes from the meeting warned that greater uncertainty over Brexit coupled with slowing global economic growth weigh on the short-term outlook for the UK.
• Omnis view: The BoE’s latest decision was widely expected, so the market reaction was relatively muted.

EUROPE: ITALY AND EU SETTLE BUDGET DIFFERENCES

• Italian sovereign bonds rallied after the country’s coalition government agreed to reduce fiscal spending plans for 2019 to keep its budget deficit within EU rules.
• Omnis view: While the EU would have preferred greater concessions from Rome, it suspended the excessive deficit procedure which would have led to financial sanctions.

COMMODITIES: GLOBAL GROWTH WEIGHS ON OIL PRICES

• Oil prices hit their lowest point in over a year amid concerns about the impact of the slowing global economy on demand.
• Omnis view: Higher US interest rates also put pressure on oil prices which become more expensive to other countries when the dollar strengthens.

LOOKING AHEAD – TALKING POINTS

MONETARY POLICY

• The Bank of Japan publishes the minutes from its recent policy meeting on Tuesday

ECONOMIC DATA

• Japan publishes November’s unemployment rate on Thursday.

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.