The last full trading week of the year appeared to provide a snap shot of the year as a whole as the main issues that have caused investor anxiety in the past 12 months reared their head again. Providing a timely reminder that the global economy still faces many obstacles on the road to recovery. Fears that the resurgence of the far left in Greece would lead once again to the break up of the euro, the Federal Reserve would bring forward their interest rate rise timetable, and that falling commodity prices would once again lead to another emerging market crisis, all contributing to a start to the week very similar to the way the previous one finished.
The worst fears were not realised and global equity markets, which had had such a torrid week the week before, recovered some of the previous week’s falls. The FTSE 100, the S&P 500 and the Stoxx 600 all gained about 3% on the week. The Vix at one stage on Wednesday climbed to 26 as fears grew, the top end of a 2-year trading range, fell sharply on Thursday and Friday to close at 16. Fund managers will now hope that the markets will now end the year in relative calm.
Much of the focus of the past week was what the Federal Reserve might do with the word “considerable”. In the end, despite the improving economic data, the committee signaled that there is no rush to make a material change in rate policy by leaving the word “considerable” in the statement. The Brent crude oil price, having touched $58, closed the week back over $60. The fall in the oil price has brought the banking sector back into focus as investors worry how much exposure they have to the projects that were funded on far higher oil price assumptions.
From a macro point of view,and due to the time of year there is not much to focus on for the week ahead aside from the final readings for Q3 GDP for the US and UK.
This will probably be my last blog of 2014 and so I wish all our readers a very Merry Christmas and a prosperous New Year. We are going to take a break for the festive season as we formulate our thoughts for the year ahead and take a look back at the highlights of 2014.