Asian data to set risk tone, but FOMC policy decision front and centre

Although the macro calendar serves up some useful data over the course of the coming week, broad market attention is expected to be concentrated around the looming FOMC policy meeting outcome (Wed). By now, a 25bp tightening in policy is well telegraphed.

"We believe it would take some meaningful intervention to dissuade the FOMC from delivering on recent rhetoric. Indeed, a failure to do so would not only create unnecessary volatility, but would also severely impact Fed credibility", says Lloyds Bank.

This leaves the debate more about the subsequent profile than the actual hike itself. The combination of the infamous 'dot plot' and Chair Yellen's ensuing press conference should further inform implied expectations. A decent revision to the dot plot, converging further to subdued market expectations, would go a long way to supporting the 'gradual' messaging anticipated in both the Accompanying Statement and Yellen's post-match performance.

Ahead of what is widely viewed as marking a momentous post-crisis shift in the global policy outlook, a general lack of positioning risk attitude is likely to limit market participation rates. While commodity sector price action has the ability to feed through to rates market orientation, core fixed income is expected to remain respectful of current range parameters pre-FOMC. As demonstrated through recent UST supply events, end user demand remains a solid feature around current yield levels.

"We anticipate any post-Fed policy-inspired yield upside as residual policy uncertainty is removed and will prove relatively well contained even if, in the UK, GBP FI loses the benefit of BoE APF demand until late January", added Lloyds Bank.