"Double, double toil and trouble; Fire burn, and cauldron bubble." Macbeth

The previous week ended with the news that Donald Trump’s tax reforms had become a step closer, this past week ended with what appears to be some progress on Brexit. The FTSE 100 finished the week up just over 1%. It was a roller coaster week for the pound, sterling traded above 1.35 against the US dollar during the week. Just to prove the adage buy on the rumour sell on the news, the pound finished the week below $1.34. Wall Street finished the week with another record close, after a mixed piece of economic data at the end of the week. The unemployment rate in the US held steady at 4.1%, however, wage growth remains muted as the annual growth rate of average hourly earnings, at 2.5%, came in below expectations. The Vix index, fell back below 10 this week, once again suggesting that investors remain calm into the year-end.

US treasuries, ahead of this weeks Fed rate announcement, the gap between the two and ten-year yield closed to almost 50 basis points earlier in the week, the lowest in almost a decade. Yields on the ten year, finished the week back close to 2.4%. German ten-year yields did fall below 0.3%, in the past five days however finished the week just above 0.3%. Sentiment indicators continue to suggest optimism, however not yet euphoria in equity markets.

Looking to the week ahead of the Federal Reserve’s meeting on Wednesday should see the Fed raise interest rates by a further 25 basis points. Assuming they do raise rates as expected, the accompanying statement will set the tone for expectations for the year ahead. The continue tax debate is also likely to impact market sentiment. The Federal Reserve has indicated they intend to raise rates another 4 times in the coming year, the market forecasts half that number. The Fed has a history of more hawkish statements and more dovish actions. Ahead of the Fed meeting the Federal Reserve the Federal Reserve gets the latest Producer and Consumer price data.

Not only will the markets hear from the Fed, they also get to hear from the European Central Bank as they too have their monthly rate-setting meeting. After lasts months meeting, where the ECB announced their plans for a further reduction in the bond-buying program, this week’s meeting is likely to be less noteworthy. The final event of the week that may create some volatility, its known in the market as “quadruple witching”. This is a one-quarter event when the stock index futures, stock index options, stock options and stock futures all expire on the same day. This is a time traders use to clear their books particularly ahead of the Christmas break.

Posted on December 10, 2017 .