Chaotic markets

It was pretty chaotic in markets yesterday with equities selling off sharply and core bond yields falling quite notably. However, while European stocks closed down more than 3% on the day, stocks in the US reversed course late into the New York session, rallying by around 3% from their lows to end largely flat overall (in the case of the S&P 500), with US 10-year bond yields also reversing  course to end marginally lower on the day at just under 2.90% having traded down to circa 2.80% at one point. Amid all of this madness, the dollar was a little weaker against the euro at around $1.14 with the single currency once again not much changed against sterling at 89p

The trigger for the turnaround in US stocks, it is claimed, was a Wall Street Journal report which said the Fed is considering, as part of an evolving ‘data dependent’ strategy, whether to signal a ‘wait-and-see’ approach after a likely interest rate hike at their meeting late this month which could slow down the pace of rate increases next year. Whether the Fed slows down rate hikes to the extent the market now thinks – it expects just one 25bps rate increase in 2019 which is not fully priced in until the very end of next year – remains to be seen

The Fed Chair Powell, meanwhile, noted in a speech yesterday, that the US economy is “currently performing very well overall, with strong job creation and gradually rising wages”, adding that “by many measures, our labour market is very strong”

Today sees the release of the November employment report in the US, with the consensus expecting the economy to have added 198,000 jobs last month with the unemployment remaining at 3.7% and the year-on-year growth in earnings also expected to hold steady at 3.1%