Analytics, EU – Baltic States, Financial Services, Funds, Latvia

As noted in the management commentaries, the key events for the financial markets in December were another increase of the key interest rate of the US FRS and the extension of the quantitative easing programme by ECB.

According to RAM experts, despite of the fact that the main central banks of the world are moving in different directions, by the end of 2017 a certain convergence of their policies may be expected, which will result in a further increase of the interest rates both in America and Europe.

As noted in the review, "FRS raised the key rate for the second time in the past decade. The Central Bank forecasts three such raises in 2017. This prediction contrasted with expectations on financial markets that resulted in a better yield of financial debt instruments."

Experts also noted that this December was an extremely favourable period for the financial sector of the United States. Bank and financial institutions stocks grew on the promises of Donald Trump to deregulate the sector and expectations of profit growth (due to the increase of the interest rate).

The tightening of monetary policy has led to strengthening the dollar, which had a negative affect on commodity prices. At the same time, leading commodity sector companies continued to grow in value due to optimism of investors who put high hopes on the economic programme of the new President of the United States.

The focus of attention on the political scene in Europe in December were elections in Austria, where radical forces were defeated, as well as the resignation of Italian Prime Minister Matteo Renzi, who was unable to carry out the required reforms.

In the short term, as experts emphasise, these are possible changes in geopolitics that remain the main risk factor for financial markets.

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