Investors all around the world were waiting for Tuesday as it was judgment day. The interest rate decision by the FOMC was anxiously awaited. In the end, the Fed cut interest rates in the US by 25 basis points as the market expected. Surprisingly, the equities markets reacted negatively. Probably Wall Street was waiting for Christmas present in the form of a 50 basis points cut. The discount rate was cut from 5.0% to 4.75%. On Thursday, US macroeconomic publications surprised investors. The first good news came with the release of the retail sales, which increased by 1.2% against the forecasted 0.5%. Core retail sales (excluding sales of automobiles) were higher by 1.8% while analysts expected a 0.6% gain. Prices of Producers (PPI) in the US increased in November by 3.2% on monthly basis (forecast was 1.5%). PPI Core (excludes food and energy products) went up by 0.4% against the forecasted 0.2%. Friday’s CPI report showed an increase by 0.8% (forecast: 0.6%) and the Core CPI by 0.3% (forecast: 0.2%). Higher than expected inflation pushes away the perspective of another interest rate cut in the US.

Disappointed with Tuesday’s FOMC decision, markets tumbled. During the course of the week, the Dow Jones Industrial Average lost 1.45% to 13,520 (till Thursday) while the S&P 500 retreated 1.80% to 1,488.5 (till Thursday). As usual, Asian stock exchanges followed US indices with the Japanese Nikkei 225 decreased by 2.82% to 15,535.

Emerging markets reacted even stronger than developed markets’ stock indices. The Polish WIG 20 lost almost 4.0% and tumbled way below the 3,600 level ending the week at 3,550. The main reason were of course falling global indices. Its effect had the CPI reading that showed inflation in Poland increasing to 3.6% against the forecasted 3.5%. It brings closer the possibility of another interest rate hike in Poland, which can certainly strengthen the Złoty but will not help the equities markets. The WIG 20 is falling close the level it started the month. Will Polish investors not experience the “rally of Santa Claus” (in December, stock usually gain due to the coming Christmas)?

Adam Narczewski