Market Action

• U.S. markets on Friday ended a five-day streak of losses for risk assets. A combination of weak economic data, global growth concerns and disappointing Q4 earnings contributed to the declines.
• The story of the week in financial markets was the surprise abandonment by the Swiss National Bank of their exchange-rate peg to the Euro. The central bank stated in veiled language that the peg was no longer as necessary as in year’s prior, but markets are interpreting the language as a sign that the SNB is trying to get ahead of a depreciating Euro with the ECB expected to announce QE next week. A continued fall in the Euro would have required the SNB to increase intervention in the foreign-exchange market and expand its balance sheet.
• Investors are also using the SNB’s move as the clearest sign yet of deflation becoming anchored into the global economy. Additional headlines ranging from falling consumer prices on the Continent, a surprise rate cut in India, and poor loan growth in China add credence to the message.
• With the week’s risk off attitude and deflation being a household term markets saw a flight to quality. While the dollar stayed neutral for the week as a whole it strengthened considerably Thursday and Friday. 30-year bonds hit record lows in the U.S., Canada and other developed nations, continuing 2014’s bond rally.
• The Advocate General of the European Court of Justice provided tacit approval for the ECB’s purchasing of sovereign bonds this week, removing one of the biggest question marks before the central bank meets on the 22^nd. All signs seem to point to a QE program emerging this month but the format is unknown. Most market participants expect a program of roughly €500-600 billion.
• The International Energy Agency released a report Friday forecasting for higher oil prices in the second half of 2015. Energy stocks rallied on the news as a rising number of firms have announced cuts in their capital expenditure budgets for 2015.

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