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World Week Ahead: Rate bets intensify

Monday 23rd November 2015

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A holiday shortened week offers a slew of US economic data, including the latest estimate for third-quarter GDP, as investors try to gauge if these qualify for what San Francisco Fed President John Williams called “a strong case” for a December rate hike.

"The data I think have been overall encouraging, especially on the labour market," Williams told reporters on Saturday after a conference at University of California Berkeley's Clausen Centre, according to Reuters. 

"Assuming that we continue to get good data on the economy, continue to get signs that we are moving closer to achieving our goals and gaining confidence getting back to 2 percent inflation... If that continues to happen there's a strong case to be made in December to raise rates,” Williams noted. 

Last week’s rally on Wall Street was paced by the Wednesday release of the minutes from the Federal Open Market Committee’s October meeting, and subsequent comments by Fed policymakers, that the pace of future interest rate increases would be gradual.

“There’s continued upward momentum in the market as people get more comfortable with the fact that rates are probably going up, and they’re only going up because the economy is strong enough to justify that,” Michael James, managing director of equity trading at Wedbush Securities in Los Angeles, told Bloomberg.

To be sure, there are some market watchers wary of the rate outlook. Point72 chief economist Dean Maki told a Reuters summit that the Fed could be pressed to lift rates as many as four times, perhaps five, in 2016, especially if the jobless rate falls further and inflation rises faster.

In the past five days, the Dow Jones Industrial Average rallied 3.4 percent, while the Standard & Poor’s 500 Index climbed 3.3 percent, and the Nasdaq Composite Index gained 3.6 percent.

"There's more risk now that if they don't raise in December, then people will worry that we're still not out of the woods,” Jerry Braakman, chief investment officer at First American Trust, in Santa Ana, California, told Reuters.

On Tuesday the Commerce Department’s second estimate of gross domestic product for the third quarter is expected to show an annualised 1.9 percent increase after a previously reported 1.5 percent, according to a Bloomberg poll.

This week will also offer key data on the US housing market, with reports on existing home sales today, S&P Case-Shiller home price index on Tuesday, as well as the FHFA house price index and new home sales on Wednesday. 

Other data slated for release in the coming days include the PMI manufacturing index, due today; corporate profits, consumer confidence, and the Richmond Fed manufacturing index, due Tuesday; as well as durable goods orders, weekly jobless claims, personal income and outlays, PMI services, and consumer sentiment, due Wednesday.

On Thursday US markets will be closed for the Thanksgiving holiday. Volume is expected to be lighter than normal both Wednesday and Friday as many traders take an extended break.

In Europe, the Stoxx 600 Index rallied 3.3 percent in the past five days. Last Friday European Central Bank chief Mario Draghi fuelled bets that the central bank will add fresh stimulus measures at its December meeting.

Here too, a busy week of economic data will offer the latest on eurozone manufacturing and services PMIs, due today; eurozone’s third quarter GDP, and Germany’s IFO survey, due Tuesday; Germany’s GfK consumer sentiment, due Thursday; and a slew of eurozone confidence data, due Friday.

On Tuesday, investors will also eye Bank of England Governor Mark Carney’s testimony to UK lawmakers on the Treasury Committee about the central bank's latest Inflation Report. 

 

 

 

 

 

 

 

BusinessDesk.co.nz



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