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Week In Review: No Miracle On Wall Street

The season of goodwill may be in full swing, but in equity markets, festive cheer is in short supply. Shares were on no-one’s gift list after the US Federal Reserve (FED) left an interest rate hike under the tree. The move raised the US base rate by 0.25 percentage points to a range between 2.25 and 2.5% and the reaction was sharp – deep and crisp, even. Generally, markets felt that the comments accompanying the Fed’s decision weren’t turtle-y dovish. The central bank now expects two more increases next year instead of three, but it has changed what it deems to be a “neutral” level for interest rates from 3% to 2.8%. If its predictions for the timings and extent of rate increases are accurate, rates will go above neutral next year.

The rate hike was widely expected, and all three of the main US equity indices had started the week in ‘correction’ territory, having fallen more than 10% from their previous peaks. Furthermore, the S&P 500’s plunge in the aftermath of the decision was its most severe response to an interest rate increase in nearly 25 years. The index of blue-chip companies was down 5.1% for the week to Thursday’s close.

Rome and Brussels sprout new spending deal

Markets in other regions mirrored the US. The FTSE World Europe (ex UK) Index dropped 3.2%. This was despite news that Rome has finally agreed a spending plan with the European Commission. The deal means Italy’s populist government will have to delay its ‘minimum income’ programme. In return, it should avoid heavy fines for breaking euro-area budgetary rules.

Neither was there much seasonal bonhomie in the UK. The brouhaha over Brexit continued to snowball. On Thursday, a cross-party group of Conservative and Labour MPs engineered a Christmas truce in an attempt to stop a no-deal departure from the European Union. The idea is for the group to express its dissatisfaction with Theresa May’s plans before Parliament votes on them in early January. Meanwhile, the UK prime minister and the leader of the opposition are unlikely to kiss and make up under the mistletoe. On Monday, Jeremy Corbyn announced that he was tabling a motion of no confidence against Mrs May. Later in the week, he denied that he had referred to her as a ‘stupid woman’ during prime minister’s questions. The UK’s FTSE 100 Index had fallen nearly 2.0% by Thursday’s close.

The widespread declines across equity markets led investors to favour typically ‘safe’ assets instead. Gold was in demand, presumably not just by those with a traditional taste in Christmas gifts. The cost per Troy ounce of bullion climbed 1.6% to $1,258. Equivalent prices for frankincense and myrrh were not readily available at the time of writing.

BA humbug?

Meanwhile, many travellers found themselves driving – rather than flying – home for Christmas. Gatwick Airport, one of the UK’s busiest, was forced to stop flights from Wednesday evening until Friday morning, after drones were spotted flying in its airspace. More than 110,000 air passengers were affected. Shares in International Consolidated Airlines, British Airways’ parent company, fell 0.9%. Easyjet, the operator with the most planes based at Gatwick, was down 1%.

And finally…

‘‘Tis the season of online shopping. But convenience brings its own problems, as anyone who’s ever had a parcel stolen can attest. Fear not, however: we’ve got wind of a solution. A former NASA engineer has spent six months coming up with a deterrent for parcel pilferers. Mark Rober’s booby-trapped ‘bait box’ will cover any budding burglars with glitter and the smell of, err, flatulence. Sounds like a standard Christmas Day to us. More sprouts, anyone?

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