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Judgement Day

Federal Open Market Committee Meets to Discuss Rates

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After positive results from the last nonfarm payrolls and relatively good results for retail sales over the latest period, expectations of liftoff are running high. Despite inflation being far from the Federal Reserve’s desired value of 2.00%, annualized figures show an improvement over the previous year, marking the highest for 2015, and potentially a stepping stone for gradual rise of rates.

Sweden Keeps Rate Unchanged

Sweden's Riksbank, the world's oldest central bank, left monetary policy unchanged on Tuesday, stating that the combination of record low interest rates and an asset purchase program will be enough to push persistently low inflation towards the desired 2.00% target. The Swedish Central Bank indicated that the main interest rate and repo rate will remain unchanged at -0.35% where it has stood since July. The Bank left its sovereign bond buying target at 200 billion Swedish Krona up until the end of June 2016. Furthermore, the Riksbank is prepared to expand monetary policy accommodation even further in order for the country to achieve its inflation target according to policymakers. The Swedish Krona has strengthened versus the Euro, with the EURSEK pair falling 9.26 from a high 9.36 kronor following the Central Bank announcement.

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Positive UK Inflation

Inflation in the United Kingdom climbed back into positive territory on an annualized basis while monthly data flattened for the latest reading. On an annual basis, consumer prices climbed to 0.10% in November after having contracted to -0.10% the previous month. The gains were largely attributed to the improvement in retail sales as consumer savings from falling prices of petrol and diesel led to increased expenditures in other areas. The biggest contributors to the rebound in the annualized figure was housing and utilities which rose by 0.30% while restaurants and hotels followed, gaining 1.80%. However, despite the positivity, on a monthly basis consumer prices stagnated at 0.00%, slowing from October’s reading of 0.10%. Even though inflation has seen a slight uptick, it is not necessarily enough to change the outlook for monetary policy with the Pound giving ground in the previous session, closing at 1.5037.

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Rise in US Inflation

The annualized core consumer price index rose in November, meeting expectations of 2.00% and beating last month’s year over year figure of 1.90%. The increase in core CPI reflected steady gains household rents, airline tickets, new motor vehicles and medical care. Monthly core CPI recorded no growth, meeting estimates and last month’s values after staying steady at 0.20%. The headline data recorded a climb of 0.50% year over year compared to October’s 0.20%, noted to be the uppermost rate for 2015, whereas monthly data was flat in November, down from October’s 0.20%. Despite the downtick in energy which continues to weigh on the measure, higher rents and hotel rates are helping offset the pressure even if oil declines further with the strong dollar keeping commodities ebbing near lows. Inflation still remains far from the Federal Reserve’s dual mandate, potentially impacting the outcome of today’s rate decision.

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German Investment Boost

The ZEW Economic Institute recorded gains in investor sentiment for a second consecutive month. Investor confidence rose to 16.1 from November’s 10.4, beating estimates of 15.0. The Institute added that while the rush of refugees posed challenges for German society and the economic downturn in emerging markets was putting pressure on the exports, the country's economy appeared sufficiently robust to cope with the upcoming challenges of 2016. The reading for December from the ZEW also showed current situation at 55.0 against a value of 54.4 in November. The data reported marks a welcome bounce after the index had fallen to a great degree for much of the year after shaky emerging markets conditions, the Greek debt crisis, and the Volkswagen emissions scandal dented sentiment.  The DAX 30 rebounded modestly during the prior session on the back of a weaker Euro, climbing back above 10,400.

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