Daily Market Commentary 18th December

The Fed and the Bank of England both left rates unchanged and left their massive monetary stimulus programs in place, with the Fed indicating they could increase QE, as required. This was enough to drive equity markets higher and improve sentiment. The monetary policy was complimented by the prospect of a massive fiscal stimulus in the US. Congress are on the verge of approving a $900 Billion support program, to compensate the surging virus cases and political lockdowns.

The EU/UK trade deal may finally be agreed to, which only added to market confidence, with the GBP surging to trade above 1.3600. The weaker US Dollar also allowed the EUR to rally to 1.2260, despite the draconian lockdowns across Europe and the damage done to economic activity. US economic data is also much weaker and Unemployment is on the rise, although the housing market remains strong.

The commodity currencies were major beneficiaries of the weaker reserve, with the AUD surging above 0.7600, while the NZD pushed up to 0.7150. NZ GDP numbers recorded a surge of 14% growth in the third quarter, beating expectations and enhancing economic prospects. Australian employment data also reflected the relatively strong economic performance, with over 90,000 jobs added and the participation rate rising up to 66.1%.

Central Banks are supporting the severely damaged markets and Governments are adding fiscal rescue support to the economy. The underlying damage of the virus and to global economies remains partially hidden and dangerous deficit and debt levels, will come into focus in the New Year. Who pays the piper?