The Fed threw a curve ball last week in adopting a more hawkish tone even though it kept interest rates unchanged. The Fed restated expectations of moderate growth and a slow return to the target rate of inflation. Not surprisingly, the probability of a rate hike in December rose significantly to over 50% from sub-30% earlier.

US economic data during the week was mixed, with the moderate 1.5% Q3 GDP number in line with expectation, as consumption remained robust while the reduction in inventories was seen as a positive as this should be reversed over the next couple quarters.

An important week ahead for US data culminating in the October non-farm payroll report on Friday, expected to rise by c.165k, while earnings growth should remain subdued. A number of Fed officials will also be talking through the week and the market will watch for clues on a potential December rate hike.

UK GDP growth slowed rather more than expected to 0.5% q/q and 2.3% y/y. Services emerged as the main driver of growth, with construction and manufacturing both acting as a drag on growth. This week the BoE is expected to keep rates unchanged but the focus will be on the Inflation Report.

Thanks to our friends at London & Capital