It’s been a quiet start to the final trading day of the week, with the absence of any major economic events giving investors the opportunity to mull over the ECB announcement on Thursday and look ahead to next week’s Fed meeting.

These are the last two big events of the year and Mario Draghi and his colleagues have already given us a festive surprise, delivering a lump of coal wrapped in tinsel. While a reduction in asset purchases had been touted, I don’t think markets were expecting it at a time when inflation is still so far below target and the economic outlook only marginally improved.

Fortunately for the ECB, it’s all in the delivery and Draghi is the master of dressing up what would ordinarily be bad news. His insistence that this is not a taper, combined with the promise to increase purchases again if needed and the removal of certain barriers to the bond purchases, appears to have helped investors look past the reduction. The fact that we appear to be in a very forgiving market right now may also have helped, with investors appearing insistent that the santa rally will make an appearance this year.

I’m not expecting any surprises from the Fed next week, with markets almost fully pricing in a rate hike and some dovish statements likely to accompany it. The key to the meeting is likely to be how many rate hikes the Fed is forecasting for next year given that markets are currently only pricing in one by November, which I think is too few. Given the Fed’s bullish forecast for four last year and the much improved conditions this time around, it will be interesting to see what approach they take.

The only notable economic release today is the preliminary UoM consumer sentiment reading, which is expected to show confidence rising to its highest since May.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

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