FOMC Speeches Ahead

Daily Analysis - 12/11/2015

Upcoming Economic Event in Washington DC Includes an Abundance of Fed and FOMC Voting Members

FOMC Members are likely to take the opportunity today to further communicate the Fed’s rate hike plans for December. Considering that Janet Yellen struck a very hawkish tone just a few days before the NFP report last week, markets are likely to expect a continuation of the hawkish rhetoric from Fed policymakers.

China Industrial Production Could Trigger Easing

Chinese industrial production figures for the month of October released yesterday showed a modest decline, rising only 5.60%, below estimates of 5.80% and down from 5.70% in the prior month. Retail sales numbers were however upbeat, rising 11.00% during October and indicative of a larger shift from an export oriented market to more of a consumer oriented economy. The moderate trend of numbers continues to point to a sluggish economic growth from the world's second largest economy. Taken along with the ongoing deflation in producer prices and further deceleration of consumer inflation growth, the People’s Bank of China is likely to announce further rate cuts along with another possible reduction in the bank reserve requirements ratio within the quarter. USDCNH tested the highs of 6.3990 before giving back the gains and closing on a bearish note at 6.3890.

UK Unemployment Dips to 5.30%

The monthly ILO unemployment report from the UK was a mixed bag. While the unemployment rate fell to 5.30%, from 5.40% last month, the average earnings growth continued to push along at a steady pace, but missed estimates for the second month in a row, rising 3.00% for the month. There was a modest decline on average weekly earnings excluding bonuses, which increased 2.50%, below estimates of 2.60% and down from 2.80% prior. The mixed numbers are likely to ease the pressure off the Bank of England from hiking rates ahead of its projected 2017 estimates. GBPUSD was initially muted to the news but thereafter, managed to break higher and tested the highs near 1.5200, posting a third day of gains and closing at 1.5210, but the currency is showing signs of a bearish momentum taking shape in early trading today after a brief test to 1.5220.

Australian Unemployment Improves

Surprising the median estimates, Australia’s unemployment numbers released earlier today showed a strong report overall. The unemployment rate fell to 5.90%, from 6.20% previously while the payroll change for the month jumped by 58,600 along with a modestly upward revision to the previous month’s employment change from -5,100 to -800. The biggest contributing factor to the jobs report was a surge in full-time employment despite the participation rate falling from 65.00% to 64.90%. The overall strong jobs numbers saw the Australian Dollar surge across the board as the market participants expect the RBA to delay any further rate cuts in the next two quarters with the implied probability of any December rate drop now standing at zero. AUDUSD touched a session high of 0.7144 before the currency started to retrace some of the gains of nearly 1.00% after the news hit the wires.

Euro Area Data and Fed Policy in Focus

Germany's CPI numbers are due for release today as the markets expect to see inflation staying unchanged at 0.00% for the month of October. Euro Area industrial production data is also due with estimates of a -0.10% contraction, a modest improvement from -0.40% recorded previously. ECB President Mario Draghi is also slated to speak, but given that there was no reference to monetary policy at yesterday's Bank of England forum, it is unlikely that Draghi will speak much on the ECB's plans at today's event. The US trading session has a strong line of FOMC members, including Federal Reserve Chair Janet Yellen, James Bullard, Charles Evans, William Dudley and Loretta Mester all lined up to speak. The markets will be particularly curious to hear from all the Fed members within a matter of a few hours. Expect to see some short-term volatility in the USD Crosses.