Markets Lower on Hawkish Fed

• Markets/Fed

• UK/Brexit

• Oil and Gold

Fed stays the course despite sell-off

European equity markets are expected to open slightly in the red on the final trading day of the week, taking a cue from Asia overnight where stocks came under pressure following Thursday’s Fed decision.

Just as the feel-good factor was beginning to return to the markets, buoyed by the result of the US midterms, the Fed swooped in and brought everyone back down to earth. Any hope that the central bank would soften its hawkish stance in response to the October scare was quickly dashed as the Fed made the usual marginal adjustments to the statement and put off anything more significant until next month.

This was always likely to be the case as November wasn’t really a “live” meeting, meaning there was no press conference and no real chance of a rate hike. This gives the Chairman no real opportunity to explain any changes so they were always likely to shy away from doing anything too drastic, especially as the market has since calmed down a little. Should any more periods of volatility and selling break out, I would expect that to be addressed in December.

While this isn’t really a significant shift, it is weighing on sentiment a little, although this could be nothing more than some profit taking after the midterm-induced rally. I guess we’ll see how investors respond over the next few sessions and into the weekly close, which may offer some insight into how much risk there is perceived to be.

Brexit silence brewing deal optimism

One area where there is likely to be perceived risk is the UK which will be in the spotlight on Friday. It’s gone very quiet on the Brexit front, something many are taking as a sign that serious negotiations are taking place in private in an attempt to get a deal wrapped up this month. It seems politicians like their holiday period too and don’t want this scuppering their plans next month and so media sparring has been replaced by real negotiation and talk of concessions on red lines. Or as it will probably turn out to be, fudges that allow all sides to save face and get something through parliament.

The potential for a deal to be announced any day brings with it an element of weekend risk for the pound, both to the upside and downside. I don’t believe talks will fall apart this late in the day as it’s in no one’s interest but they could and a weekend announcement could make for a nasty open on the Monday. As for today, we’ll have to settle for GDP, manufacturing and investment data from the UK to drive early volatility and moves.

Oil pares losses ahead of JMMC meeting

Oil is trading a little bit higher on the day after entering bear market territory on Thursday. The tide has well and truly turned for Brent and WTI over the last month, something I’m sure oil ministers from around the world will be all-too aware of. It’s surprising then that heading into the JMMC meeting this weekend, traders remain resolutely bearish on crude, despite the potential for further output cuts to be discussed in order to address the recent supply demand dynamics and, of course, price.

Gold drifts lower on stronger dollar

Gold continues to drift lower at a very gradual price, weighed on by returning risk appetite earlier in the week and the dollar over the last 48 hours, with the Fed giving it an extra kick higher. This decline in Gold is very gradual though which suggests to me a certain resilience in Gold bulls and if the dollar fails to build on these gains, which I suspect it might, they may feel emboldened going into year-end.