Weekly Market Recap: December 13-17

Key Developments

The Bank of England surprised markets again this month, as it decided to increase rates to 0.25% (from 0.1%), with a 8-1 majority on Thursday [1]. The decision came after Wednesday's data showed UK's Inflation jump of 5.1% in November, following a solid jobs report.

Later in the same day, the European Central Bank (ECB) left rates unchanged but announced It will discontinue net asset purchases under the Pandemic Emergency Purchase Programme (PEPP) at the end of March 2022. [2].

However, the Asset Asset Purchase Programme's (APP) pace will increase (from 20 bln/month) to €40 billion/month in the second quarter and €30 billion in the third quarter. From October onwards, purchases will be maintained at 20 billion euros, for as long as necessary to reinforce the accommodative impact of its policy rates.

The Federal Reserve had kicked things off on Wednesday, speeding up the tapering of its asset purchases program, which now expected to conclude in the first quarter of 2022[3]. Officials also upgraded their interest rate projections, now seeing three hikes within the next year [4].

On Friday the Bank of Japan maintained interest rates at -0.1%, extended its pandemic loan scheme by six months (until September) and announced that it will reduce the amount of corporate bonds and commercial paper it buys, to pre-pandemic levels from April. [5]

During this week we also saw a stellar employment report from Australia, with the addition of 366.1K jobs in November and Unemployment dropping to 4.6%. Reserve Bank of Australia governor mr Lowe, though, pushed against rate hike calls [6].

The Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) offered diverging views on Oil demand and Omicron's impact on it, with their monthly reports.

Market Movements

The US Dollar was having a mixed week, facing pressure after the Fed's priced-in hawkish pivot. At the time of writing, the British Pound was heading towards a profitable week against the greenback due to the BoE-fueled rally, whereas NZD and CAD were losing ground.

Wall Street was down, as the initial positive reaction to the Fed did not last, while main European stockmarkets were also having difficulties.

USOil looked set for a poor week, whereas XAU/USD was about to end its four-week losing streak, undeterred by prospect of higher US rates next year.

Corporate Activity

Airlines and plane makers were in the spotlight this week, as Qantas picked Airbus for the update of its domestic fleet, while regulators kept busy and Buy Now Pay Later (BNPL) firms came under scrutiny in the US.

Week Ahead (GMT)

Following this week's intense schedule, the next one has a much lighter economic calendar, with many markets closed on Friday due to the holiday season.

GDP figures from UK and USA are due on Thursday, while markets will get inflation and employment update from the US on Thursday, via the Personal Consumption Expenditures and the weekly Jobless Claims.

Canada Retail Sales are due on Tuesday and November GDP on Thursday, while from Australia we expect RBA minutes (Tuesday) and Retails Sales (Friday).

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 17 Dec 2021 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-2021

2

Retrieved 17 Dec 2021 https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.mp211216~1b6d3a1fd8.en.html

3

Retrieved 17 Dec 2021 https://www.federalreserve.gov/monetarypolicy/files/monetary20211215a1.pdf

4

Retrieved 17 Dec 2021 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20211215.pdf

5

Retrieved 17 Dec 2021 https://www.boj.or.jp/en/announcements/release_2021/k211217a.pdf

6

Retrieved 03 Jul 2022 https://www.rba.gov.au/speeches/2021/sp-gov-2021-12-16.html

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