For the week starting Monday October 31, 2016
1. FOMC Interest rate decision. Wednesday, November 2, 2016, 2 PM ET/1800GMT. It might be apropos that the Fed makes a change in the rated just 6 days away from the election. After all, this has been quite a surprise filled US election. However, the best we might expect is if the Fed were to telegraph a hike in December although this is not expected either (the chance of a surprise hike is 17%). The meeting before the December meeting last year did not telegraph explicitly that a December hike was forthcoming. Seeing that this meeting is just a statement (no dot plot, no press conference scheduled), the vote might be the most important part of the statement. We know at the last meeting there were 7 members in favor of no change while 3 were against. Although there have been a lot of members saying "get on with it", their goal may have been to get "the market" to price in some probability that something might happen. That way if they do tighten, it would not be a shock. The probability of a hike for December is around 70% and we know that yields on the treasury curve have also been rising. So although not at 100%, the Fed is getting closer to convincing the market/the world that the one a year December holiday present might be just around the corner.
2. US employment report. Friday , November 4, 2016. 8:30 AM ET/ 1230 GMT. The Fed monitors both employment and inflation and we know the Fed is more comfortable with employment, and more concerned about the inflation (from the statement: "In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal." Nevertheless, a December hike would be further priced in (all things being equal) if there is a solid employment report in October. What is solid? That can be debatable. The last two months of 167K and 156K in August and September, were much lower than the 271K and 252K in June and July. The expectation for this month is for rebound to 175K in October. That would be solid. What would help to determine solidity, would be if the unemployment rate dips back down to 4.9% (from 5.0% last month). Also wages might also be eyed as a barometer for a solid report. The expectations are for a 0.3% gain MoM and 2.6% YoY for wages. Where were we a year ago on both these measures? At 5% and 2.6% respectively - right where we are now. The Fed might reason we are at full employment, but why aren't wages kicking in as a result? Lower paying jobs, global uncertainty, domestic uncertainty. election uncertainty are some of the headwinds perhaps. We also have very low productivity. It is hard to increase wages when productivity is trending lower. What is concerning is it seems that although the US may cheer job gains, it may also be that the US may be teetering on going the other way too. Manufacturing continues to suck wind. The expectations are for -5K vs -13K last month. Moreover it will be 3 negatives in a row which has not happened since 2010. Also I looked back at the Fed's central tendencies from Dec of last year, and the Fed was projecting an unemployment rate of 4.7% at the end of 2016. That projection also implied a dot plot where the Fed would have tightened 3 or so times in 2016. There has been no tightenings to date and the unemployment rate is not 4.7% but 5.0%. If the unemployment rate tilts the other way and the NFP is not 175K, is the apple cart more wobbly. Would a Fed have the rug pulled out from their plan to have one tightening in 2016? Key event.
3. RBA Interest rate decision. Monday 11:30 PM ET/Tuesday 0330 GMT. The RBA is expected to keep rates unchanged in the current when they announce on Monday/Tuesday local time. The RBA is expected to keep rates unchanged (probability of a cut is just 5.9% in November and 11.9% in December). The most recent employment report came in weaker with -9.8K employment and most of those job losses coming in the Full time category. However, QoQ CPI was higher at 0.7% vs 0.5% estimate, and YoY was also higher. So the market will be concerned more about the nuances of the statement and what Governor Lowe might have to say.
4. Bank of England interest rate decision. Thursday 8:00 AM ET, 1200 GMT. No change expected but focus will be on the nuances of the statement with regard to projected economic conditions going forward as the central bank prepares for implications of a hard or soft Brexit. Of course, there are still a lot of rocks that have yet to be upturned. As a result, the BOE hands are somewhat tied.
5. Bank of Japan interest rate decision. Monday/Tuesday. The BOJ is likely to vote to keep the 10-year yield target at 0% and is also expected to hold its overnight deposit rate, at minus 0.1%. Like other central bank decisions this week, the statements and comments will be eyed with expectations that the BOJ will lower inflation expectations for 2016 and 2017.
Other important releases and events
- Canada employment report. Friday at 8;30 AM ET/1230 GMT. The US and Canada will both release employment reports on the same day this month. The expectations are for -15K iin Employment change after last months surprise 67.2K increase. The unemployment rate is expected to remain unchanged at 7.0%