Markets brace for volatility as a Fed rate hike looms

STOCKS in the United States came close to their highs of the year last week, with the Dow Jones Industrial Average finishing around the 18,000 mark, after statements from the central bank that indicated its collective mind was made up - and the strongest jobs report of the year. Together, these developments were interpreted as virtually assuring a rate hike in December, a fitting climax to a year on the stock market that has sometimes felt like a performance of Waiting for Godot, with Janet Yellen stepping in for Samuel Beckett's Godot.

Employers added around 271,000 workers to payrolls in October, bringing the unemployment rate down to 5 per cent - long considered "full" employment for the US. In the wake of the report, Fed funds futures (the market where investors make odds on rate policy) showed those odds increasing to a seven-in-ten chance of a December hike. That calculation drove the dollar (the supply of which is affected by rate policy) to its highest level since 2002, against a basket of major currencies.

If all of this gives you an eerie sense of déjà vu, you are not alone. The major indexes were right around this level after jobs reports in June and again in early August - and for precisely the same reasons. Then, as now, investors thought the jobs market looked robust, a development chairwoman Yellen and others had described as the last hurdle to "normalising" interest rates after five years of near-record lows.