Will the markets enjoy a ‘Santa Rally’ this Christmas?

by David Jones, a Chief Market Strategist at Capital.com

Investors hoping for a quiet run up to Christmas are likely to be disappointed, with a busy week ahead and plenty of potential for market volatility.

First of all – stock markets. This is the time of year where we start to speculate on the so-called “Santa Rally” – the tendency for shares to do well in December and towards the end of the year. It would appear that delivery of this has been delayed. Last week was another volatile one for global stocks and Friday saw the US Dow Jones index close near six-month lows. This continues to be a tough time for investors – concerns about trade wars rumble on and, in the UK, every day seems to bring a new profit warning from a major retailer. Earlier this week, it is the turn of former stock market darling ASOS – its shares are down by 40% in morning trade, a worrying sign that the consumer malaise is not just effecting the high street, and even former online high flyers are feeling the pinch.

The Brexit uncertainty rolls on. The pound has recovered off last week’s 20-month low versus the US dollar but still remains vulnerable to shocks. It’s a brave trader who bets on any sizeable recovery in the short-term – anecdotal evidence suggests that speculators are looking to other markets for opportunities due to the increasing unpredictability of the UK’s currency as political uncertainty continues. Wednesday’s night’s decision from the US Federal Reserve, where it is expected to raise rates by 0.25%, should keep foreign exchange markets moving this week.

Two major commodities – gold and oil – are quiet by comparison. Oil continues to look liek it is building a base above the $50 a barrel mark – although it struggles to make much meaningful upside at the moment. The recovery in gold – up around $40 an ounce in the past three months – continues to attract buyers into any weakness. Investors seem happy to park their cash in this traditional safe haven, given the unrest seen across higher risk assets, which shows no signs of changing as 2018 draws to a close.