21 December 2015

Back to normal?

Far from being a season of goodwill to all men, investors have had a lot to put up with since the doors on their Advent Calendars started popping open.


Markets that were hardly robust to start with saw shares move smartly into reverse as commodity prices tumbled. The first full week of December saw the Footsie shed not far short of 5% and fall below 6000 for the first time since September. The oil price fared even worse, falling more than 10% in the same week. So much for the Santa rally.

The fly in the ointment had been the meeting of the Federal Reserve Bank’s Open Markets Committee. This is the body that sets interest rates in the US, much as our own Monetary Policy Committee of the Bank of England does here. Ahead of the event expectations had been pretty much unanimously for a modest uplift in interest rates – the first since the summer of 2006. Those forecasting the hike weren’t disappointed.

 It was, of course, the financial crash of 2008 t hat brought about the near zero interest rate policy that has endured for more years than any thought likely. While the increase of 25 basis points – or one quarter of one percent – may not seem too harsh, the worry has been the effect it might have on a variety of areas. Bonds in particular look vulnerable if monetary policy is to be tightened. With a major US bond fund suspending redemptions this week, investors have had plenty to be concerned about.

In the event there was something of a relief rally in markets, with our own Footsie index reversing the previous week’s losses. Sentiment was doubtless helped by the somewhat dovish remarks that accompanied the increase. Opinion remains divided, though, as to whether this marks the start of a steady flow of rate rises or a policy that will have to be turned on its head if economic conditions worsen. It does feel, though, like the first step towards normality, whatever that means.

Little else will be moving markets as we approach the end of the year. It’s too close to Christmas for much in the way of company news to emerge, though I once recall a company putting out an unexpectedly poor statement on Christmas Eve one year – admittedly a long time ago. Clearly they thought it was a good day to bury bad news. I hope investors can look forward to more cheering news as Christmas approaches and wish all our readers as enjoyable a festive season as possible.


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