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Markets smelling a December Fed rate increase

Published Friday, November 6th, 2015

Today is another big data day. It’s always a big data day I hear you say, stifling a yawn. OK, but this is a really big one because if this afternoon’s non-farm payroll number comes in at the expected level of 180,000 or above then a decision to raise interest rates at the Fed’s December 15-16 meeting is in the bag. Why is it in the bag when economic events outside the US could intervene? Because in the minutes of the Fed’s October meeting reference to external events impacting was not mentioned and in her testimony to the House Financial Services Committee earlier this week Janet Yellen said that “downside risks’ to the US economy from global economic and financial developments have diminished since September.

The chairlady of the Fed described an interest rate increase at its December meeting as a “live possibility”. The market has therefore moved the odds of a Dec interest rate increase to close to 60%. The NFP number could disappoint, as it did last month, but yesterday’s market manoeuvrings make it clear where the sentiment is leaning, influenced by an ISM services index released on Wednesday which came out at 59.1 from 56.9 in September with strong sub-index numbers on new orders and employment.

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Posted by David Hufton