Central Banks’ hawkishness kills market’s mood

By Tomasz Wisniewski|

Published: December 16 2022, 09:19 GMT+0

Central Banks’ hawkishness kills market’s mood

December is supposed to be a jolly month for stock traders as, historically, it is a month when indices climb higher thanks to the so-called “Santa Rally”. In the first days of December, many experts were almost certain that the end of the year would be optimistic, but there has been a drastic change this week. It is a crucial one for the markets as we obtained plenty of interesting data and outlook from major central banks.

Instead of receiving support, markets have received heavy blows, particularly from the FED and ECB. At first, FED was more hawkish than expected and yesterday, ECB delivered quite aggressive remarks about rising rates in the future and painful inflation that shall not be overcome so easily. This was a wonderful piece of news for the Euro but, of course, unfortunate for indices. Most of them dropped towards levels seen last on November 10 with an extremely bullish session.

Almost all indices dropped yesterday, with the German DAX going lower by more than 3%. The same happened with Nasdaq. From the technical point of view, the most recent reversal looks like a start of a new mid-term bearish trend on stocks. The Santa Rally is in danger.

Commodities did not enjoy yesterday’s session. Metals and oil went lower. Only natural gas seemed not to care and climbed 8% higher. Oil also drops today. Brent, for example, tested the 83 USD/bbl. resistance and it seems that this is too much for buyers for now.

Hawkish ECB definitely helped the Euro. It was one of the strongest currencies yesterday but, surprisingly, not the strongest one. The first place went to the American Dollar yesterday. I guess traders are still digesting the FOMC from Wednesday. The dollar is the one wearing the crown. Worth noticing is the appreciation of the Swiss Franc, 50bp interest rate rise does not happen there every day, does it?

If you think we had enough fundamental attractions for one week, you are wrong! The week is far from over and the calendar today is packed with PMI data from all over the world. We already received the PMI from Germany and France and they came better than expected.

Soon, we will learn the PMI from the Eurozone, the UK, and, at the end of the day, from the US. The market has really low expectations here, so the chance of a positive surprise is significant.