Economic and market background
On 18 December, following weeks of intense seismic activity, a volcano on the Reykjanes peninsula of southwest Iceland erupted. Large quantities of lava and smoke were ejected across a wide area, creating a spectacular, red- lit backdrop which could be seen from Iceland’s capital Reykjavik some 25 miles away. Financial markets, meanwhile, after coming under significant pressure during the second half of the summer and October, were reignited during the final few weeks of the year as hopes for an economic soft landing gathered pace, with a notable easing of financial conditions supported by a disinflationary narrative and increasingly dovish rhetoric from the US Federal Reserve (Fed).
