Once again China concerns have spiked just as a Federal Reserve rate decision looms. Continued yuan devaluation has been the main driver this time, but it has combined with the ongoing rout in oil and other commodity prices to produce a week of losses for equities.
Just a week ago the situation had seemed relatively calm, but it now appears that many investors have been trying to put a brave face on the situation. Now that mask has slipped.
It goes without saying that the Fed is not meant to take notice of market turmoil in its decisions, but if it feels that the international situation once again calls for it to stay its hand next week, then we could be witnessing a re-run of September.
Leaving aside the damage that this will do to the Fed’s credibility (potentially putting Janet Yellen into the ‘unreliable partner’ category currently only occupied by Mark Carney), it will be hard for the central bank to put a positive spin on any decision not to increase rates.
Looking into next week, it isn’t entirely about the Fed decision, as we have CPI figures from the UK and the US, plus employment numbers from the former. The euro has enjoyed a good December so far, and with plenty of data from the eurozone next week we may see this bounce continue.
Nonetheless, all eyes are on Wednesday and what happens with regard to the decision, the statement and the press conference.
Seasonality suggests the Santa rally will finally start to kick in from next week, but the strength and duration of that depends largely on Janet Yellen. She has a big week ahead of her.