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The FTSE looks set to see out 2016 with somewhat of a whimper, with very little in the way of volatility and volumes being seen in European stock markets this morning. There is a strong feeling that much of the volumes seen throughout this holiday period have been more of a speculative nature rather than long-term investment given the volatility typically seen this time of year. However, as we approach 2016 with much of the major monetary policies on a relatively stable path, there is a feeling that the unpredictability of 2015 may ease in 2016.
As an incredibly choppy December comes to an end, there is a feeling that 2016 will represent the conclusion of monetary policy expansion for the UK, following on from this month’s Federal Reserve's rate hike. 2015 has seen the FTSE moving in an inverse manner with inflation, with falling inflation in early 2015 treated with glee by investors, yet as disinflation fears were allayed in H2, we have seen the FTSE pull back in anticipation of a more hawkish Bank of England stance. Given that disinflation fears have been driven largely by the fall in oil prices, there is reason to believe that 2016 will also see sentiment largely driven by the movement of oil prices, their impact upon inflation expectations and the subsequent monetary policy stance from the BoE.