Markets Anticipating a Fed Rate Hike Wednesday With Confidence

December 15, 2015

Today is the first day of a landmark FOMC meeting.  A policy announcement will be made Wednesday at 14:00 EST (19:00 GMT) followed by a Yellen press conference to start tomorrow at 14:30 EST.

European share prices are up over 3.0% in Germany, France, Italy, and Spain.  They have rallied 2% in the U.K. and Switzerland and gained slightly more than 1.0% in the first 30 minutes of U.S. trading.  In the Pacific Rim, by contrast, equities fell 1.7% in Japan, 0.5% in China, and 0.4% in New Zealand and Australia but firmed 0.8% in Indonesia and 0.7% in India.

The dollar has risen 0.5% against the Aussie dollar, 0.4% versus the euro and yen, 0.2% relative to the Swiss franc, and 0.1% vis-a-vis sterling.

West Texas Intermediate crude oil recovered 1.6% to $36.88 per barrel.  Comex gold is 0.4% firmer at $1,063.52 per ounce.

The ten-year British gilt yield leaped ten basis points, and its U.S. counterpart is five basis points higher.  German and Japanese sovereign debt yields, by comparison, are pretty stable today.

The Swedish Riksbank repo rate was left unchanged at negative 0.35%, its level since a 10-basis point cut in July. The size of the asset purchase program was  kept at SEK 200 billion.  Despite a bit stronger growth since the prior meeting, the policy bias remains directionally biased toward even greater ease.

Hungary’s central bank base rate was left unchanged at 1.35%, its level since the last of five straight 15-basis point cuts made last July.  As in Sweden, Hungarian inflation is floundering well below target.

The tone of minutes from this month’s Reserve Bank of Australia policy board meeting is confidently optimistic about economic prospects, but officials did not rule out the possibility that the official cash rate might be cut further in the future.

U.S. consumer prices in November were unchanged on month and accelerated to a 0.5% 12-month rate of increase.  This outcome matched street expectations.  Core inflation edged 0.1 percentage point higher to 2.0%. Food prices rose 1.3% on year, while energy sank 14.7% versus 12-month drops of 17.1% recorded in October and 18.4% in September.

In other U.S. data reported today, the National Association of Home Builders monthly housing index unexpectedly slid a point to a 3-month low of 61.  The Empire State manufacturing index, compiled by the New York Fed, climbed 6.15 points to -4.59 in December, a 5-month high.  The U.S. Treasury reports on monthly capital flows later today.

The German ZEW Institute’s monthly estimate of investor confidence proved better than anticipated in December, leading officials at ZEW to conclude that confidence has swelled regarding Germany’s ability to overcome such headwinds as the influx of middle eastern migrants and the general slowdown in demand from emerging markets.  The ZEW expectations index climbed 5.7 points to 16.1 in December, best since August, while current conditions printed 0.6 points higher at a 2-month high of 55.0.  Regarding perceptions toward the whole eurozone, the expectations index rose 5.6 points to a 4-month high of 33.9, and the current situations was deemed 0.4 points better at -9.6, the best result  of the second half of 2015.

British consumer prices stagnated in November and were only 0.1% above a year earlier.  Core CPI inflation was 1.2%.  Retail prices went up 1.1% on year.  Producer output prices dropped 1.5% on year (core down 0.1%), and producer input prices fell by 13.1% (-8.3% core).  The Bank of England is trying to lift CPI back to its 2% target.

The DCLG index of British house prices posted a monthly increase of 0.8%, boosting its 12-month increase to a 7-month high of 7.0% in October from 6.1% in September and 5.5% in August.  In November 2014, the pace was at 10.4%, however.

Britain’s index of leading economic indicators dipped 0.1% in October, while the index of coincident economic indicators edged 0.1% higher according to the Conference Board.

Employment in the eurozone climbed 0.3% in the third quarter and 1.1% from a year earlier.  On-year job growth was at 3.0% in Ireland and Spain, 0.9% in Italy, 1.1% in The Netherlands, 0.8% in Germany and 0.4% in France.

European stock markets reacted positively to news of a considerably faster 13.7% advance in EU-25 car sales.

The Swiss PPI/import price index posted a second straight monthly increase, this time of 0.4% that cut the 12-month rate of decline to 5.5% last month from 6.6% in October.  In the year to November, import prices tumbled 9.7%, while domestic producer prices fell by 3.6%.

Australian motor vehicle output rose 1.0% on month and 6.0% on year in November.  Aussie home price inflation accelerated to 10.7% in the third quarter from 9.8% in 2Q.

South Africa’s index of leading economic indicators rose 0.4% in October but was still 4.7% lower than a year earlier. Brazil’s index of leading economic indicators advanced 0.8% last month.  Turkish seasonally adjusted unemployment stayed at 10.4% in September.

In the year to November, Danish producer prices dropped 3.0%, Spanish consumer prices rose 0.4% and Poland’s CPI declined 0.7%.  In the year to October, Finnish retail and wholesale sales respectively fell 2.6% and 10.3%.  Singaporean retail sales went up 2.7% on year in October, and Dutch retail sales climbed by a similar 2.8%.

Canada’s monthly survey of manufacturers for October revealed declines in sales of 1.1% on month and 3.2% on year, as well as an on-year decrease of 6.7% in orders.

Due to a bomb threat, all schools in Los Angeles were closed today.

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



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