arrow
logo

Alvexo - Giving Back To The Community

Learn More

Chances Increase for December US Rate Hike

Federal Reserve’s Case for Action on Monetary Policy Strengthens

shutterstock_230934106


The US Federal Reserve refrained from adjusting interest rates in the latest meeting, opting to leave the language of the statement largely unchanged.  While the case for a rate hike has strengthened according to the Central Bank, the decision will likely remain data dependent, hinging on a further rebound in inflation.

FOMC Holds Off on Action


Despite the fanfare surrounding the event, the latest FOMC decision came as little surprise to market participants.  The decision was not unanimous, with Fed President’s Esther George and Loretta Mester opting to dissent once more.  However, there were some small changes and hints that have set the stage for December action.  According to Fed Funds future, the likelihood of a December rate hike now stands at 71.50%, echoing the Fed’s comments that the case for a rate hike has strengthened.  The one change in the language of the statement pertained to inflation.  The Fed adjusted the statement to reflect that “inflation is expected to rise to 2.00% over the medium term,” adding to the case for action on policy.  The reaction to the FOMC decision was significant, with equity futures plunging and the S&P 500 closing below 2100 for the first time since July.

popup_close
1-sp-dec16daily11032016

Crude Falls on Biggest Inventory Build on Record


Data from the Energy Information Administration reported on Wednesday, showed that US crude oil stockpiles experienced the largest inventory gain on record since the EIA began tracking data in 1982.  Onshore inventories rose by 14.420 million barrels, handedly beating expectations of 1.103 million barrels.  Furthermore, the addition saw half of the drawdowns since August wiped away.  One of the predominant drivers of the gain was the significant uptick in crude oil imports which rose to their highest level since 2012 in the latest reporting period.  Adding to the anxiety of energy markets is rising US production, which climbed to 8.522 million barrels per day last week. After coming under pressure following renewed concerns about the OPEC output reduction deal collapsing, West Texas Intermediate futures briefly fell below $45.00 per barrel before rebounding.  Brent futures are also trading higher on the session after bouncing moderately from Wednesday’s lows.

popup_close
2-cl-dec16daily11032016

UK Construction Edges Higher


In another positive sign for the UK economy, the latest construction purchasing managers index showed a surprising tick higher to 52.6 from 52.3 prior.  Although forecasts had anticipated a slight dip towards 51.8, the economy has once more managed to outperform expectations, even as concerns of a “hard Brexit” grow.  This data combined with fundamental figures from the last few weeks highlight growing economic activity ahead of today’s interest rate decision from the Bank of England.  The Central Bank is not forecast to adjust interest rates lower at this time, especially with inflation still climbing, however, the actual exit could change the Bank of England’s stance.  With inflation continuing to rise, it could prevent the Central Bank from accommodating interest rates further. This would add to the upside potential in the Pound over the medium-term, if conditions in the UK continue to improve.

popup_close
3-gbpjpydaily11032016

Euro Manufacturing Gains Coincide With Rising Prices


In another sign that the European Central Bank’s approach to deflation is bolstering the economy, the Euro Area Manufacturing Purchasing Managers’ index displayed more positive momentum during Wednesday’s release.  The PMI rose to 53.5 from 53.3 prior, marking the highest reading since 2014 and corroborating the recent inflationary trends.  With added buying pressure from manufacturing, producer prices and therefore consumer prices have the capacity to continue rising should momentum remain positive.  As a leading indicator, the PMI figure adds to confidence in the outlook and the possibility that the European Central Bank will end its asset purchase program in March.  While stocks are trading lower as European markets digest the latest decision from the US Federal Reserve, the Euro has climbed to the highest point against the US dollar since early October, trending back above 1.1100.

popup_close
4-eurusddaily11032016

Upcoming Events

  • Time
  • Currency
  • Event
  • Forecast
  • Previous
  • 9:30 GMT
  • GBP
  • Services PMI (October)
  • 52.4
  • 52.6
  • 10:00 GMT
  • EUR
  • Unemployment Rate (September)
  • 10.00%
  • 10.10%
  • 12:00 GMT
  • GBP
  • Interest Rate Decision
  • 0.25%
  • 0.25%
  • 12:00 GMT
  • GBP
  • Bank of England MPC Meeting Minutes
  • 12:00 GMT
  • GBP
  • Bank of England Inflation Report
  • 12:00 GMT
  • GBP
  • Bank of England Governor Mark Carney Speaks
  • 14:00 GMT
  • USD
  • Factory Orders MoM (September)
  • 0.20%
  • 0.20%
  • 14:00 GMT
  • USD
  • ISM Non-Manufacturing PMI (October)
  • 56.0
  • 57.1