Markets rally on hawkish Fed

The release of FOMC minutes provided us with a particularly hawkish view, yet global markets trended counter to the monetary policy implications, with indices rallying and a fall in the US dollar. 

Janet Yellen
Source: Bloomberg

Following a week of five straight down days in the FTSE, we look set to establish a fourth consecutive rise for this week. The implications of higher rates will no doubt hit the homebuilders disproportionately more than other firms, and as such they are leading the losers on the day. Meanwhile, mining stocks continued rallying despite commodity weakness.

The Federal Open Market Committee struck a particularly hawkish tone in the minutes released yesterday, providing markets with a strong degree of certainty that we will see a hike in December. The meeting took place prior to this month’s bumper jobs report, which highlights that bar an absolute shocker in December, Janet Yellen and co can achieve the 2015 hike they seek.

Weak UK retail sales data has done little to dampen the buoyant spirit in UK markets, with sales falling 0.6% in October compared with September. Retail sales are typically volatile on a monthly basis, especially with Christmas looming; there is little doubt that we will see sales rise once more in November and December. The 11.2% rise in online sales compared with October 2014 shows that shopping habits throughout the UK are moving away from the high street and towards digital transactions, exemplified by the rise of Black Monday and Cyber Friday.

Ahead of the open we expect the Dow Jones to start 55 points higher, at 17,792.

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