The last big event in 2016 that we know about is coming. Can we expect any bad surprise from Yellen and her team? The probability of a 25 bps rate hike to 0.75% level is around 95%, in other words it is widely expected.
Strong US data, the rise in bond yields and inflation expectations, and bullish stock markets seem to be supporting the case.
Facts
- Probability of a 25
bps rate hike is priced at 95%
-
The hike is consistent with comments from Fed
officials over the past few weeks as well as
- US data coning in strong, the Trump presidential victory is pushing bond yields higher, reviving inflation expectations despite low crude oil prices and bullish stock markets towards the end of year seem to be supporting the case
-
The pace of rate hikes in 2017 will depend on an
increase in inflation, pace of labor market improvements and economic growth
-
Four members having the last meeting this week
Expectations
-
After last week’s ECB we expect volatility
primarily in EURUSD, USDJPY and Gold but stocks as well as Emerging markets
assets will not stay aside once the market will start to move
-
The hike may give additional support to USD
towards the end of the year and in 2017
-
The Summary of Economic Predictions (SEP) should
not deviate from the rhetoric and macro data we have seen in the past weeks
-
It is still very difficult to predict the tone
of Yellen’s speech as she is clearly dovish but would need to acknowledge the
good data and rate hike
-
Would be interesting to see whether they will
mention the faster pace of rate hikes in 2017 on the back of bond yields
jumping higher
-
Very likely after the FOMC meeting the markets
will switch to Christmas holidays mode with nothing really going on but low
liquidity and abrupt moves
By the way, I am sure you have already figured out that
the stocks despite the expectations of rising rates are moving higher.
Shouldn’t they be lower?
Well, the Trump’s expected corporate tax rate cuts and
deregulation do the job.
Before we actually get to FOMC meeting let’s check what history
can show us first.
Every significant Capacity
utilization increase was followed by rise in interest rates:
To refresh the memory have a look at Historical rates (Source: Wikipedia):
Enjoy...
Good luck Champs!
Mr Hawk
DISCLAIMER: This material was created for informational
purposes only and represents the Land of Trading team’s view of the past and
current economic and capital market environment. It is not an investment advice
and should not be viewed that way at all, and the creators of this material
cannot be held liable for any potential losses resulting from trading, where
despite this disclaimer someone would consider this material as an investment
advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom
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