Waiting for the Fed

This week was a holding week ahead of the Fed meeting next Wednesday. The recent slew of US data has shown a mixed outlook, but US labour costs showed a large drop this week which will reassure some investors that the Fed may feel at liberty to slow the pace of US rate hikes. However, the problem is that the US picture is far from clear, so the sentiment turned neutral this week among US investors ahead of the Fed next week. In other news, the BoC signalled that it may be at its peak and could stop hiking rates now if inflation does not keep rising.

Other key events from the past week

• S&P500: US Labour costs drop, Dec 07: News that US unit labour costs have fallen to 2.4% q/q from 3.1% q/q expected helped lift hopes of slower Fed hikes this week. Major focus remains on US jobs data and this offset some of the angst from the high average hourly earnings indicated by the last NFP print.

• CAD: Dovish hike by the BoC, Dec 07: The Bank of Canada hiked by 50bps this week to 4.25%. However, the BoC see slowing growth ahead for the economy and is now considering whether it is necessary to hike rates further.

• USD: US Initial Jobless Claims, Dec 08: The last US FOMC minutes recognise the high chance of a US recession. This week’s initial jobless claims showed continuing jobless claims rose to 1671K vs 1600K expected. This is one more piece of data that could cause the Fed to signal slowing rates next week.

Key events for the coming week

• USD: Inflation focus, Dec 13: Key focus after a very strong wages print from the last NFP remains on US inflation. A big print & expectations will grow for more aggressive Fed hikes which should support the USD & pressure stocks.

• Stronger seasonals approach for silver: Is silver set to soar post the Fed meeting?

• USD: Interest Rate decision, Dec 14: How high will the Federal Reserve need to go next year? 4.75%, 5% or even higher above 5.25%? This is what traders and investors will be wanting to know from the Fed this Wednesday.

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