U.S. December Interest Rate Hike Still Expected

December 2, 2015

In spite of yesterday’s weak U.S. purchasing managers survey in which the November index (48.6) fell to its lowest level since mid-2009, market participants by and large anticipate an initial federal funds rate hike later this month.

In fresh U.S. developments today,

  • ADP estimates a greater-than-assumed 217K increase in private-sector employment last month and revised its figure for October upward, too.
  • U.S. motor vehicle sales surpassed 18 million at an annual rate for a second straight  month.
  • The Labor Department revised 3Q-over-2Q productivity growth upward to 2.2% and on-year growth in unit labor costs to 3.0%.  The later had risen 1.1% in the year to the third quarter of 2014 and 2.1% in the year before that to 3Q13.
  • The New York ISM, known as the NAPM, printed at 60.7 in November following a reading of 65.8 in October and 44.5 in September.  Such was the first instance this year of back-to-back readings above 60.
  • Mortgage applications dipped 0.2% last week.
  • Atlanta Federal Reserve President Lockhart made some hawkish remarks identifying a very strong case for Fed interest rate hikes to begin.
  • GOP presidential candidate Ted Cruz promised to appoint very predictable conservatives to the Supreme Court.

The dollar climbed overnight by 0.8% against sterling, 0.6% relative to the euro, 0.5% vis-a-vis the yen and kiwi, and 0.3% versus the Swiss franc.  It dipped 0.1% against the loonie and yuan and is unchanged on balance relative to the Aussie dollar.

Chinese share prices shot up more than 2.0%.  In other sellected Pacific Basin bourses, share prices increased 0.6% in Hong Kong but fell 0.7% in South Korea, 0.4% in Japan, 0.3% in New Zealand and Indonesia, and 0.2% in Australia.  Over in Europe, the German Dax is down 0.2%, but most other stock markets have risen moderately.

West Texas Intermediate crude oil dropped back 2.0% to $41.02 per barrel.  Comex gold has slipped 1.3% to $1,055.79 per ounce.

The 10-year U.S. Treasury and Japanese JGB yields are four and two basis points firmer.  The 10-year British gilt yield dipped a basis point overnight, while the German bund is unchanged.

Australian 3Q GDP growth results were a little better than anticipated.  GDP rose 0.9% on quarter and 2.5% on year, up from 2.0% in the year to 2Q.  Net exports and personal consumption gave GDP its biggest quarterly boost, while investment continued to exert a drag.

Eurozone consumer and producer price data were released.  The flash CPI recorded the same 0.1% on-year uptick in November as in October, but core inflation, toward which ECB officials are paying increasing attention, slipped back to 0.9% from 1.1%.  Total consumer prices on average rose just 0.2% per annum in the two years between November 2013 and last month.  Producer prices in the euro area posted a fourth straight monthly decline, this time of 0.3% in October, and this resulted in a 3.1% on-year decline of the PPI.  Energy actually fell less sharply on year in October than September, but non-energy industrial goods dropped 1.9% versus declines of 1.5% in September and 0.7% as recently as July.

Yesterday’s British manufacturing purchasing managers survey was disappointing.  Today’s construction PMI also undershot expectations, falling 3.5 points in November to a four-month low of 55.3.

British same-store sales declined 2.1% in the year to November according to the British Retail Consortium.  October had seen them posting a 1.8% 12-month rate of decline.

Japan’s monetary base recorded on-year growth of 32.5% in both October and November, down from 33.7% in the third quarter, 35.0% in 2Q, 36.4% in 1Q, and 43.2% in 2014.  The BOJ balance sheet posted annualized growth of 23.8% in the three months between end-August and end-November.

The Bank of Canada’s overnight interest rate target was left at 0.50% as expected.  There were two 25-basis point reductions implemented earlier this year, first in January followed up by a second in July.  Canada experienced a first-half recession but returned to positive growth in 3Q.

The National Bank of Poland’s key reference interest rate of 1.5% also was left unchanged as had been expected.  Such was cut twice in the first quarter of 2015 by a total of 100 basis points.

Sweden recorded a SEK 76.4 billion current account surplus last quarter, some 23% wider than in the year-earlier period.  Norway’s NOK 43.6 billion current account surplus in 3Q15 was 11% smaller than a year earlier.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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