It has been an eventful start to the calendar year with key announcements coming out from several countries. The most market sensitive announcement in January was from the European Central Bank (ECB). As speculated by the market for several months now, ECB president Mario Draghi announced the European Union’s version of quantitative easing (QE), calling it an “expanded asset purchase programme”. This entails expanding its current (private sector) asset purchasing program to include sovereign bonds issued by euro area central governments. The program is expected to make monthly asset purchases of €60 billion.

As the year came to a close, the headline story (for at least the second half of the year) was the dramatic fall in oil prices. Both Brent and West Texas Intermediate oil prices have declined by around 50% since the start of the financial year.

The implication of lower oil prices has been that inflation and inflation expectations have softened globally. This has provided greater flexibility for central banks around the world with their ultra-accommodative policies. In particularly, the US Federal Reserve could keep rates “lower for longer” and may have their first interest rate increase even with inflation below their 2% target as their economic recovery progresses. In their statement, the US Federal Reserve signalled to the market that it was getting closer to rates “lift off” by dropping the use of “considerable time” and replacing it with “can be patient” on raising rates.

Oil prices continued to plunge in November, dipping below USD70/barrel in the days following OPEC’s scheduled meeting when, in a surprising development, the organisation decided to leave its output ceiling unchanged. The price of Brent has now fallen by some 35% since the beginning of the financial year. Equities and bonds generally delivered positive returns in November as expectations of the European Central Bank (ECB) expanding its quantitative easing (QE) policy increased. Strong performance from the non-energy sectors in the US also saw the S&P 500 eke out successive record highs during the month. Energy related equities and High Yield bonds sold off significantly, in line with the falling oil price.

The US Federal Reserve officially ended their quantitative easing program in October while, across the Pacific, the Bank of Japan announced that it was ramping up its own QE program. This follows the ECB in July announcing their asset-backed securities and covered bonds buying program. These announcements clearly highlight the divergence in global monetary policies.

In the US, the economic recovery continues with further improvement in its labour market. In October, the unemployment rate fell from 5.9% to 5.8% although the 214,000 jobs added fell below expectations. US inflation remains subdued at 1.7% y/y in September, providing room for the US Fed to remain dovish and delay raising its policy rate. Other measures of activity also pointed towards solid growth in the US. The manufacturing Purchasing Manager Index (PMI) recorded 55.9 which, despite having fallen from 57.5 from the previous month, is still at a relatively high level.

September seemed to be characterised by a sudden swing in global sentiment in the absence of any single major development. A number of factors were commonly cited. These include geopolitical (Ebola, Russia-Ukraine, ISIS, Hong Kong), fundamental (a lack of breadth in US equity market gains, slowing growth momentum in Europe, Japan and China), and diverging central bank policy paths (US and UK compared with Europe and Japan). Regardless of the causes, growth orientated assets generally sold off (equities, credit and commodities), while volatility picked up from what had been unusually low levels.