Weekly Market Outlook

Five Things You Need to Know to Start Your Day

Fed hikes, markets react, China’s having a bad week, and more central banks are in the spotlight. Here are some of the things people in markets are talking about today.

Fed hike

As expected, the Federal Open Markets Committee decided to increase rates by 25 basis points yesterday. The market reaction, which saw Bloomberg’s Dollar Spot Index surge 1.1 percent by the end of the day, was driven by the Federal Reserve’s updated dot-plot which is predicting a faster than previously expected rate of tightening next year. The yield on 10-year U.S. Treasuries reached more than 2.6 percent this morning as futures show a greater than 50 percent chance of the next hike coming in May 2017. Gold was also hit, dropping to $1,137 an ounce by 5:07 a.m. ET., while the rising dollar put emerging market assets on the defensive.

BOE, SNB and Norges Bank

At 7:00 a.m. ET the Bank of England will announce its latest monetary policy decision. While expectations are for no change to rates or the size of the asset-purchase facility, investors will be looking for signs of increasing pressure from inflation hawks on the Monetary Policy Committee. Ahead of that announcement, retail sales in the U.K. unexpectedly increased 0.2 percent in November, the Office for National Statistics said. The Swiss National Bank maintained an unchanged policy stance, also as expected, while warning of a “multitude of political uncertainties” in Europe in 2017. Norway’s central bank also maintained rates, surprising markets by not lowering its rate outlook and sparking a surge in the krone this morning.

China’s bad week

If you’re an investor in Chinese equities, bonds or currency, you’ve had a bad week. Overnight the yield on the country’s 10-year sovereign debt surged by 22 basis points, the most on record, while the Hang Seng China Enterprises Index slumped 2.3 percent. Risks are seen to be mounting in the economy as November saw a surprise jump in shadow-banking activity.

Markets mixed

Overnight, the MSCI Asia Pacific Index dropped 1.6 percent, the most since Nov. 9, while Japan’s Topix index ended the session 0.3 percent higher as the yen dropped below 118 to the dollar, a 10-month low. In Europe, the Stoxx 600 Index was 0.3 percent higher at 5:22 a.m. ET, with banks leading gains. S&P 500 futures added 0.2 percent.

Coming up…

Already this morning euro-area PMIs showed resilience, with December’s composite reading matching November’s 53.9. In the U.S. today, there is CPI, initial jobless claims, the current account balance, and Empire manufacturing data all due at 8:30 a.m. ET. Markit U.S. Manufacturing PMI is set to be published at 9:45 a.m.