Investors have a light economic data week ahead as all eyes point to the Fed and central banks around the world. Additional eyes will also be on Bitcoin futures which start to trade this week. On the economic front, we have PPI, CPI and Empire State Manufacturing.
Federal Reserve: On Wednesday (12/13), the Fed will release a statement where everybody is expecting the Federal Reserve to raise interest rates again. Right now, the odds are very high as the Fed has said there will be 3 rates this year, as we have already seen 2, and this is the last meeting of the year. So it’s all but certain. If the Fed does raise rates for the third time in 2017, we can expect to see significant volatility following the statement release. Some of the results of an interest rate increase include a strengthening in the US Dollar, a spike in Utilities & Financial companies, a weakening of foreign currencies, oil and metals. We would also see mortgage rates go up as Treasury yields will increase. This statement will be followed by potentially Janet Yellen’s final press conference as FOMC Chair. However, since the interest rate rise is likely already priced into the markets, if they failed to raise rates, we could potentially see the inverse of everything that was just stated earlier in this paragraph.
ECB Interest Rate Statement: On Thursday (12/14), Super Mario Draghi will be speaking at the ECB’s press conference to announce their interest rate statement. This also is the last scheduled statement for the year. In the press conference, the ECB may announce a growth rate increase for 2018. Should the ECB announce continued tapering of their bond purchases (further taking away the punch bowl but definitely not stopping it) more than expected, we can expect to see markets globally fall and the Euro to strengthen. Should the ECB not announce any tapering, we could see markets rally higher, and Bitcoin rally.
Bank of England and Swiss National Bank: The Bank of England is scheduled on Thursday (12/14) to publish its policy decision, Inflation Report, Official votes and new forecasts or as they call it, Super Thursday (cause their Super, thanks for asking). Since the Bank of England has indicated that it only expects to more interest rate raises between now and 2020, the markets are not expecting much. The Swiss National Bank will also be releasing the latest Libor rate and Monetary Policy Assessment. Data around their portfolio will not be released at this time so you will have to wait a little longer to see that the only institution continuing to buy US stocks are the Swiss National Bank.
Another Can Kick: Congress averted another government shutdown last week by kicking the can for 2 weeks to December 22 to give them more time to come up with a budget. Nobody expects Congress to do their job and come to an agreement this week, but any breakthrough could see markets push higher. If they still seem to be far apart on issues such as DACA and building a wall, (which we will obviously be paying for) markets could potentially scale back amid the uncertainty.
Bitcoin: After extremely wild swings last week, Bitcoin futures are set to go live at the CBOE Futures Exchange on Sunday, and Goldman Sachs will clear trading for some clients on a case-by-case basis. When being on an exchange, certain circuit breakers are triggered for outsized gains. If Bitcoin were to have the same swings as it did last week, we could potentially see futures being halted multiple times in the same day. It is still unknown how Bitcoin will react with the additional regulatory concerns.
The latest on Tax Reform: Since the Senate did not read the bill they passed, and already have gone against some of the policies they voted for, nobody knows what will actually be in the final proposal that they reconcile. So the tax policy that was supposed to get simplified is likely to end up even more complicated, if that’s possible. Investors will watch to see what may end up in the final version as certain sectors could react to the rewriting of potential tax reform before it becomes law.