Better late than never, it looks like Santa Claus may have finally arrived after all. Having dropped off sharply through the first half of December, as has been common just ahead of the Fed starting to raise interest rates, stocks and crude oil have bounced back sharply today. Nothing has really changed fundamentally, so today’s gains appear to be more of a relief rally and a snap back to ease oversold conditions. Crude oil successfully retesting its 2008 low near $35.00 has also helped to lift spirits today. Markets now appear to be ready for the main event of the month, Wednesday’s FOMC meeting where the US central bank is expected to raise interest rates for the first time since before the 2007-2009 Great Financial Crisis. Economic data of late has indicated the US economy is ready for emergency measures to start being lifted. Several FOMC members have indicated a preference for starting to raise rates this year and move gradually afterward rather than wait too long and risk destabilizing the economy having to move aggressively to catch up. So, the street is expecting a 0.25% increase to the 0.25% to 0.50% band. Fed Chair Yellen and New York Fed President Dudley have indicated rate liftoff should be seen as a sign of confidence in the economy, so an increase as expected should help to support stocks and corporate earnings expectations through the end of the year and on into 2016. A decision not to raise rates would come as a big surprise and could send stocks plunging again as we saw when the Fed held off in September. This is because with a rate hike having been strongly signalled by FOMC members a decision to hold would raise a lot of questions about the health of the US economy. Rather than the celebrations of the past, a dovish Fed would likely be greeted by a chorus of what’s wrong? Indications from the Fed in the statement, member projections or press conference on its interest rate normalization plans for 2016 could also have a significant impact on trading in some markets. The big gains of USD over the last year which drove gold and other currencies down seem to have priced in expectations of a program of steady increases as in previous cycles. The “dot plot” of member expectations from the September Fed meeting below suggests that assuming a 0.25% hike in December 2015, expectations for the number of 0.25% hikes in 2016 are as follows: 2-4 increases (0.50% to 1.00%) 8 members, more than 4 hikes (more than 1 hike per quarter) 8 members. Source: Fed Chair Yellen has suggested the neutral interest rate is likely to be lower this quarter, while FOMC Governor Brainard implied that the neutral rate this cycle could be closer to 1.25% rather than the 2.25% of past cycles. This suggests that the dot plots are likely to come down and that the Fed may not be as aggressive going forward as some people think. The USD Dollar Index has already shown signs of peaking. I suspect with the rate hike we will see a lot of dovish talk from the Fed that it will be some time before the next increase (street generally expecting March 2016). A less aggressively hawkish Fed outlook could send USD lower and send gold, other currencies and stocks higher, while tough talk from the Fed could have the opposite effect. Whatever the decision, we will likely see a flurry of activity in the first few minutes after the announcement as traders rush to get onside that could spark quick moves in both directions before traders settle on a trend. GBP and the FTSE may also be active through the day tomorrow. There has been a lot of speculation that the Bank of England could be the next central bank to raise interest rates and Governor Carney has been waiting for the Fed to clear the launchpad for him. UK employment figures may also spark another round of speculation on whether the Bank of England could move sooner or later. Corporate News There have been no major corporate announcements after the US close today. Economic News Significant announcements released overnight include: Sweden interest rate (0.35%) no change as expected US consumer prices 0.5% vs street 0.4% US core CPI 2.0% as expected US real avg weekly earnings 1.6% previous 2.1% US Empire manufacturing (4.6) vs street (6.0) vs previous (10.7) US NAHB housing market index 61 vs street 63 Canada manufacturing sales (1.1%) vs street (0.5%) Canada existing home sales 1.8% as expected UK consumer prices 0.1% as expected UK core CPI 1.2% as expected UK input producer prices (13.1%) vs street (12.4%) UK output producer prices (1.5%) vs street (1.3%) UK retail prices 1.1% vs street 0.9% UK ONS house prices 7.0% vs previous 6.1% Germany ZEW current 55.0 vs street 54.2 Germany ZEW expectations 16.1 vs street 15.0 Spain consumer prices (0.3%) as expected Upcoming significant economic announcements include: (Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore) 12:35 pm AEDT Japan flash manufacturing PMI previous 52.6 8:00 am GMT France flash manufacturing PMI street 50.6 8:00 am GMT France flash service PMI street 50.8 8:30 am GMT Germany flash manufacturing PMI street 52.8 8:30 am GMT Germany flash service PMI street 55.5 9:30 am GMT UK jobless claims street 1K 9:30 am GMT UK average weekly earnings 3M/yr street 2.5% 9:30 am GMT US unemployment rate street 5.3% 9:30 am GMT UK 3M employment change street 150K vs previous 177K 10:00 am GMT Eurozone consumer prices street 0.1% 10:00 am GMT Eurozone core CPI street 0.9% 8:30 am EST US housing starts street 1,130K 8:30 am EST US building permits street 1,150K 9:15 am EST US industrial production street (0.2%) 9:15 am EST US manufacturing production street 0.0% 9:45 am EST US flash manufacturing PMI street 52.6 2:00 pm EST US FOMC interest rate lower bound 0.25% increase to 0.25% expected 2:00 pm EST US FOMC interest rate upper bound 0.25% increase to 0.50% expected 2:30 pm EST FOMC Yellen press conference