Look for a year-end rally after the Fed

Global equity markets closed a second week in the red with the DAX, the SMI and the DOW down approximatively 10%, 7% and 4% respectively in this month of December.

After a disappointing ECB, investors are getting nervous as we approach the Fed meeting, even though a rate hike undoubtedly expected. Attention will shift to the timing of the Fed’s next move, yet we see no reason for the Fed to sound overly hawkish. On the contrary, the Fed has a tendency to use a strongly dovish tone whenever the market volatility increases. The VIX increased 64.7% over the course of the week from below 15 the prior Friday to 24.39 last Friday.  Additionally, Oil and the Chinese Yuan at record low since 2008 and 2011 respectively, are both putting further pressure on inflation expectations. Thus, the Fed has no interest to see the US dollar rally too quickly.

DAX

Over the past 30 years, the DAX rallied on average 3% for the period between December 18 to January 6. Technically the DAX has retraced 61.8% of the October-November rally and could be set for a rebound.

SP500

The SP500 found strong buying support around the 2000 psychological figure, on which it quickly rebounded over 40 points.The SP500 found strong buying support around the 2000 psychological figure, on which it quickly rebounded over 40 points.

SMI

The SMI, which is trading within an horizontal range, bounce off the bottom of the range at 8350 and could head to the top of the range at 9000, then 9500 in case of a break.

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