It was a busy week for central bank meetings with the Bank of England (BoE), European Central Bank (ECB) and Federal Reserve (Fed) all hosting their final policy meetings of 2023. With interest rates left unchanged across the board, it was the Fed’s future rate projections that underpinned another decent week for equity markets. The heavily scrutinized Fed dot plot signalled three rate cuts next year which if accurate, would be a far more aggressive series of rate cuts than previously thought[1]. That in turn prompted a sharp retracement in treasury yields, the closely monitored 10-year security falling by 32 basis points (bps) to 3.92%. US equities advanced for a seventh consecutive week with the S&P 500 adding +2.5% and the Dow Jones Industrial Average reaching its highest ever level.

In Europe, equity market moves were more muted with the BoE and ECB not as dovish as their Fed counterparts. BoE policymakers reiterated their commitment to stamping out inflation, stating that they would raise rates even further if necessary. That wasn’t enough to prevent a selloff in gilts with yields falling across the curve, the 10-year concluding the week 36bps lower at 3.69%. The FTSE 100 rose by +0.3%, the mid-cap centric FTSE 250 jumped by +2.7% whilst on the Continent, the MSCI Europe ex UK index rose by +1.0%. In Asia, it was another solid week for Japanese equities with the Nikkei 225 rising by +2.1% whilst the Shanghai Composite in China declined by -1.0%. That was despite solid industrial production and retail sales data, although the latter did undershoot analyst expectations.

After seven straight weeks of decline, oil prices edged higher for the week with Brent Crude rising by +1.1% to $76.64 a barrel. Prices received some support from a spate of attacks on ships traveling through the Red Sea, a crucial route for oil shipments. Copper was another beneficiary of those growing Fed rate cut hopes with the metal rising by +1.1% to $8,455 a tonne with weakness in the US Dollar also providing support. That factor also underpinned an uptick in gold with the precious metal rising by +1.6% to $2,035 an ounce.

Week Ahead

Source: Refinitiv Workspace, 18/12/23

[1] Federal Reserve – Summary of Economic Projections 18/12/23

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