Written by Shane Balkham.

“A turn in sentiment has seen whip-sawing changes in markets and is creating a volatile environment for the end of the year.”

The Rime of the Ancient Mariner seems rather apt at this particular juncture. While the albatross heralded stormy conditions to sailors, data is signalling similar volatile conditions for the coming weeks.

The US employment for November showed that 210,000 jobs were added last month, significantly fewer than the expected 550,000. However, overall unemployment fell to its lowest level since the pandemic began. This was greeted with a sharp drop in US equities, as investors retreated from large technology companies, as evidenced by the fall in the Nasdaq index.

Employment data is a key indicator for the Federal Reserve, so when Chair Jerome Powell gave testimony to Congress last week, in which he signalled his support for an acceleration in the wind-down of their quantitative easing programme, markets concluded that coupled with the jobs data, faster policy tightening was assured. The narrative should be about an economy getting stronger where extreme emergency policy is no longer needed or appropriate. This suggests an environment where we can expect interest rates to rise and tapering to be complete sooner rather than later.

We have the meetings of both the Federal Reserve and the Bank of England next week, where expectations are high for the rhetoric to confirm this story. The Federal Reserve will also publish their updated ‘dot plots’ giving us an indication of where they expect short-term interest rates to be over the coming months.

Before the meeting of minds across both sides of the Atlantic, we have the US inflation reading on Friday where the top end of forecasts has a reading in excess of 7%. This should provide weight to the Federal’s decision, especially now the word ‘transitory’  has been retired from their lexicon. The twist in the tale though is we have the new variant of COVID-19 to concern us. Data surrounding Omicron’s virility and potency has yet to be confirmed, although the latest news suggests that this variant could be milder than Delta.

The move towards normalisation was always likely to be treacherous and fraught with the risk of policy missteps. Celebrations during Thanksgiving might have been premature as there are stormy seas to navigate before the next holiday. With inflation data for the US due this week, and the heavy weight policy makers meeting next week, it pays to be prudent and have an appropriately diversified portfolio.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 6^th December 2021.

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