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Markets Decline on Fed Rate Hike - EMEA Brief 20 Dec

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  • Markets fall as Fed raised US interest rate from 2.25% to 2.5%
  • At its lowest the Dow fell over 4% following the announcement (its lowest point in over a year) of which it has now seen a small retracement.
  • Asian markets we also affected, the Hang Seng was down 1.24% at close whereas the Nikkei lost 2.84%, a 15-month low
  • The announcement saw the dollar gain almost 0.5% against the dollar basket but as investors have fully digested the statements made by the Fed this now sits at a 0.16% gain.
  •  As can be expected, the inverse was seen from gold which fell 0.8% and has now recovered half of that.
  • Oil has lost most of the gains made in yesterday amongst demand and over supply fears. This comes as U.S inventories have dropped and OPEC have reduce output by 1.2 million barrels per day
  • Looking ahead, the Bank of England are set to make their rate announcement today although forecasts expect them to remain at 0.75%. Brexit is currently dominating the UK rate, analysts have stated they would normally expect a raise in current conditions but the BoE have implied they are also mindful of the possibility of a no-deal Brexit.

Asian overnight: Asian markets have followed their US counterparts lower, coming off the back of the Fed’s decision to raise rates for the fourth time. This drop comes despite the dot plot shifting the expectations to two rate hikes in 2019, rather than three. Japanese indices suffered the most overnight, with the BoJ rate decision also coming into play. Kuroda & co decided to keep rates steady, also pointing out that that is unlikely to change anytime soon given that inflation expectations remain relatively subdued. 

UK, US and Europe: Looking ahead, the Bank of England maintains the central bank focus, with the MPC widely expected to keep policy steady. With UK retail sales also due out, it should be a volatile morning for the pound. In the US watch out for the Philly Fed manufacturing survey.

Whilst this rate hike was largely expected by investors, many believed that this rate hike would be the last in this tightening cycle. However, the announcement made by the Chair of the Fed, Jerome Powell was less dovish than expected. Whilst original projections we for three rate increases in 2019, this has now been reduced to two. Powell also reiterated that politics played no role in influencing their decision as Trump has criticised the Fed in the past for subduing the economy by raising rates.

Economic calendar - key events and forecast (times in GMT)

Economic Calendar 20.12.PNG

Source: Daily FX Economic Calendar

9.30am – UK retail sales (November): sales to rise 3.4% YoY. Markets to watch: GBP crosses
12pm – BoE rate decision: no change in rates expected. Markets to watch: GBP crosses
11.30pm – Japan CPI (November): prices to rise 1.4% YoY, and core CPI to rise 1%. Markets to watch: JPY crosses

Corporate News, Upgrades and Downgrades

  • Stagecoach has agreed to sell its North America division for $271 million, as it refocuses on its UK operations. 
  • AstraZeneca said that the US FDA had approved its ovarian cancer treatment. Separately, it said that two trials for chronic kidney disease had met their primary objectives. 
  • Kier reported that less than 40% of shareholders took up the rights issue, although it had managed to raise the £250 million required. 
  • Pinterest are said to be preparing for an IPO as early as April 2019

Ceconomy upgraded to hold at HSBC
Geox upgraded to neutral at Mediobanca SpA

Ashmore downgraded to sell at Citi
Funding Circle Holdings downgraded to sell at Citi
Man Group downgraded to neutral at Citi
Novozymes downgraded to underweight at JPMorgan

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Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary

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