There are two major macro narratives in play right now and both have caused heightened market volatility. Firstly, Omicron uncertainty. Although not clear, early indications show that Omicron seems to be more transmissible, but less deadly. This allowed risk assets to halt their falls on Tuesday. Secondly, is the Fed moving too fast on rate hikes? Eurodollar futures have around 3 hikes priced in for next year. In 2018 the Fed was perceived to be too aggressive, too quickly and that brought about a 20% drop in the S&P500. Watch out for the Fed meeting next week to see exactly how hawkish or dovish the Fed really are.

Other key events from the past week

• AUD: Interest Rate Meeting, Dec 07: The RBA spoke loudly this week by their silence. They are not dovish. Furthermore, they downplayed the Omicron variant risk and RBA watcher McCrann said there could be a rate rise as soon as early next year.
• VIX: Volatility calms, Dec 08: Measure of volatility dropped sharply lower on Tuesday. The OVX (oil), MOVE (bond), & VIX (stocks) all started drifting lower again as the most serious Omicron fears faded.
• CAD: Interest Rate Meeting, Dec 08: The last Bank of Canada meeting saw a hawkish shift from the BoC. However, this week the BoC stressed Omicron uncertainty as weighing on the outlook for the Canadian economy moving forward.

Key events for the coming week

• USD: Interest Rate Meeting, Dec 15: Focus will be on how fast the Fed accelerates its bond tapering programme. If the Fed is seen to be moving towards hiking rates too quickly then there is a risk that stop markets fall heavily.
• Seasonal trades: Gold to shine? Dec 14: Gold has some very strong seasonals around the turn of the year. Check out the strong seasonal pattern here. Also, don’t miss out on knowing what drives gold right now.
• GBP: Interest Rate Meeting, Dec 16: Expectations are that there will be no interest rate hikes from the BoE next week. However, if they do surprise markets expect a sudden downside in the EURGBP as Christine Lagarde has said that interest rates will not rise in the eurozone next year as inflation is transitory.

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