The biggest meeting of the year was the main focus last week. As expected the Fed announced a 25bp increase in the target Federal funds rate to 0.25-0.50%. The FOMC's decision was unanimous. The statement accompanying the FOMC decision notes that the committee now sees the risks to the outlook for economic activity and the labour market as being "balanced", rather than "nearly balanced" as was previously the case. The Fed also believe that inflation will return to 2% in the medium term, probably due to the large decline in energy prices between 2014 and 2015 subsiding. Moving forward, the 'dot plot' the FOMC uses indicates that the median participant still anticipates four 25bp rate hikes over the course of 2016. The FOMC have given themselves plenty of room to manoeuvre as their assessment takes into account a wide range of information including measures of labour market conditions, indicators of inflation pressures, inflation expectations, and readings on financial and international developments. Finally Fed Chair Janet Yellen emphasised that there is no mechanical rule that will determine the timing of the next rate hike.
Christmas celebrations are on their way this week, meaning low volumes should be seen as we get closer to the end of the week. Today is relatively light with the only notably data being the Eurozone consumer confidence released this afternoon. The economic docket is a lot busier tomorrow and Wednesday with the release of US final GDP reading and US core durable goods. The low liquidity could cause some volatility during the week and we’ll see if some sort of Christmas rally can take form as well.
Eurozone consumer confidence will be released later this afternoon. An improvement is expected, as the index rises to -5.6 from -5.9. We could see some Euro movement surrounding the release of this figure at precisely 15:00 GMT.
The third and final reading of US GDP is expected to drop slightly to 1.9%. The reading will be its worst since June this year. Existing home sales is released later that afternoon, where we will gain an insight into the sale of homes throughout the US.
UK’s final reading GDP is expected to increase by 0.5% q/q, down from the previous 0.7% estimate. The y/y rate is forecast to be revised lower by a point to 2.3%. US core durable goods will be released in the afternoon. US durable goods are expected to fall overall by 0.73% m/m, with orders excluding transport down 0.66%.
Liquidity should be light today as markets begin to pack up for the Christmas holiday period. Low liquidity can mean high volatility so beware of high levels of currency fluctuation leading up to Christmas day. The weekly jobless claims figure is released this afternoon.
All major markets except for Japan will be closed in observance of Christmas Day. Enjoy the festive period and have a great holiday.