This was an important week for
the market. This article will focus on the key market-making news that happened
during the week.
On Wednesday, the Federal Reserve
made its final interest rates decision for the year. The bank raised interest
rates for the fourth time this year. This was an important decision because
investors were torn about whether the Fed will hike or not. This is because in
the past, data has not been very supportive of a hike. For example, the recent
employment numbers missed analysts’ consensus while surveys from individuals
and companies are shaky. The housing market has been volatile as well. The Fed
was also under intense pressure from the US president and major figures. The
raise and the guidance for two more hikes led to a sharp decline of the market.
The Fed hike triggered another hike in Hong Kong. This was expected because the
Hong Kong dollar is pegged to the USD.
Yesterday, the Riksbank surprised
the market by having an interest rate hike. The bank moved from minus 0.25% to
0.5%. This was a surprising release because while the bank had guided about a
raise, investors expected the weaker data to prevent it from hiking. After the
rise, the Swedisj Krona gained by almost a percentage point against the euro.
In the statement, the bank said that with uncertainty about the economy, it
needed to move cautiously. Investors believe that this will bring the repo rate
to 0.05% in the second half of 2019.
Yesterday, the Bank of England
(BOE) left interest rates unchanged at 0.75% as the officials warned that
Brexit presented unique challenges for the economy. The decision to leave rates
unchanged was expected because of the current cloud surrounding Brexit. The
vote to leave rates unchanged was a unanimous one as the bank warned that
inflation could fall below 2%. It also lowered the Q4 growth estimate to 0.2%
from 0.3%. This pushed the FTSE 100 to the lowest level since 2016.
Bank of Japan
The Bank of Japan (BOJ) left
interest rates unchanged as expected in its final meeting of the year. The bank
also left its yield curve control mechanism and asset purchases unchanged. This
was an expected move because Japan is currently struggling to raise inflation.
In fact, inflation data released today was below that of October. It is
currently halfway of the central bank target and with oil prices declining,
there is a likelihood that the rate will decline further. The governor said
that while the risks are tilted to the downside, the country’s economy remained
strong. This week, Japanese stocks entered a bear market after the Fed and BOJ
In the United States, there are
likelihood that the country will face a government shut down this weekend. The
reason for this is that Donald Trump has insisted that wall funding must be in
the spending package he will sign. After showing flexibility, the president
changed his mind and said that he would veto any spending without the wall
funding. While the republicans in congress passed the bill with wall funding, the
bill will likely be rejected in the senate.