With the festive season fast approaching, next week is likely to be one of the quietest in the markets, both in terms of major news flow and trading activity. While this in itself doesn’t mean we won’t have much volatility, there will be fewer catalysts throughout the week that would otherwise spark some life into the markets.
Certain themes from recent weeks are likely to carry over into next week which should ensure we’re not left searching for things to talk about. The santa rally in recent weeks has been strong and undeterred by only the Fed’s second rate hike in a decade and its forecast of three more to come next year. The prospect of large fiscal stimulus next year is probably helping alleviate any rate hike concerns, with the US now appearing on a path of stronger sustainable growth, something investors could not say confidently 12 months ago.
Italian banks are likely to remain in the headlines next week and should the recapitalisation attempts run into any difficulties, could spark some negatively around the European banking sector. Reports suggest the Italian government is drawing up plans to create a €15 billion recapitalisation fund but even this won’t be straightforward given the new bail in rules that the region has adopted on the back of the debt crisis.
Next week is looking a little quieter on the economic data and events side but there are a few things that stand out. The Bank of Japan monetary policy decision on Tuesday could be interesting, although having only altered policy recently – in what has thus far been quite a successful move – we’re not expecting any major changes. It will be interesting though to see whether the BoJ’s outlook has improved given the significant depreciation in the yen over the last few months. We’ll also get the minutes from the most recent Reserve Bank of Australia meeting along with a new economic and fiscal outlook which could offer additional insight into the likelihood of further easing next year. Thursday and Friday will bring final GDP readings from the UK and US, which should wrap the week up nicely ahead of the festive weekend.