Market Brief: Key week ahead for both sides of the pond

We expect the MPC to raise the Bank rate for the first time in over 10 years this Thursday, by 25bps to 0.50%. Whilst caution could be argued over tightening policy during a period where household budgets are under pressure and corporate decision making may be sensitive to Brexit uncertainties, we suspect the committee will hint that rates may well need to rise further, albeit very gradually, to meet its 2% inflation target over the medium-term. In line with the rate decision, MPC voting pattern and the Governor’s press conference, we will also be treated to the quarterly Inflation Report, which should shed light on the BoE’s medium term expectations.
Sticking with monetary policy, the next FOMC announcement takes place on Wednesday evening which will likely yield an unchanged policy stance, but we will look for any read through towards December’s meeting. There are market whispers claiming that this will be preceded by the President’s announcement of his nomination for the Fed Chair. The latest reports indicate President Trump is leaning towards Fed Governor Jerome Powell to be Janet Yellen’s successor for the top seat. Seen as less hawkish than some of the other candidates, he seems the most likely option available to Trump to provide the highest degree of continuity to current policy.
Moving back to Europe, tensions in Spain escalated over the weekend after Catalonia’s regional parliament voted in favour of independence. Spain’s Senate promptly responded by implementing Article 155, allowing Spanish PM Rajoy to retake control of the region, where he has since named a new police chief, dissolved the Catalan Parliament and called new regional elections for 21 December. Madrid’s actions appear to have restored a degree of market confidence – Spanish stocks are rebounding this morning. 

The day ahead

Elsewhere this week we have UK Manufacturing, Construction and Services PMIs towards the end of the week as well as the all-important Super Thursday but keep an eye on any Brexit related headlines. Across the pond we expect to see plenty of earnings data throughout the week, the FOMC announcement, and key jobs data on Friday where we expect a post hurricane reading of +260k in the US payrolls.

Thought of the day

Lewis Hamilton lifted his fourth world title in the 18th race of the season at the Mexican Grand Prix. It has been a record-breaking year for the 32-year-old as he becomes only the fifth driver to win the title four times, and the first British driver to record his fourth world title. While Hamilton is aiming for a fifth crown - a total that would make him the most successful current F1 driver - he still refuses to commit to the sport post-2018, when his current Mercedes contract expires. With Christmas around the bend, have you started to think about your FX cover for 2018 and beyond? The Investec Economists forecasting that Sterling could recover by the back end of 2018 and be trading at 1.1500 and 1.4000 against the EUR and USD respectively. Using a hedging product like a Forward Extra, will give you 100% protection, while giving you the ability to participate in these potentially favourable moves. To discuss the levels you could potentially achieve speak with your Investec Dealing team on 0800 055 6339.