Friday November 4, 2016 - 22:09:29 GMT
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Three Ring Circus: Election, Fed and Brexit
John M. Bland, MBA
Election, Jobs And Fed
Obviously the major event of the week ahead will be the outcome of the U.S. Presidential election. At this juncture, it appears that Hillary Clinton is in the lead, but the vote is still shrouded in uncertainty. The market reaction to the outcome should be driven by the amount of uncertainty it generates.
The October U.S. employment beat expectations when revisions to prior data were taken into account. Also the key Average Hourly Earnings data were marked higher. Key for the Fed will be November data due early in December before the next Fed decision.
The Federal Reserve met on November 2-3 and reached a decision to keep policy steady, as universally expected. The Central Bank has a tradition of trying to keep a low profile during election periods, and that is especially true now when they have become a target by politicians trying to keep the spotlight off themselves due to their inability to bolster the economy. Fed Funds Futures continue to run roughly 70% odds in favor of the Fed hiking its Funds target by 25bp in December. Those who make a science of combing through Fed policy statements say they found a couple of subtle hints that the odds for a December hike have risen. Reading the statement as written, It seemed as though FOMC members still left some "wiggle room" for December depending on future data. They wrote:
"In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal."
In other words, inflation continues to run below target. As for their policy conclusion:
"The Committee judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives."
In other words, we might, or we might not, decide to tighten in December, depending on future developments. <br
U.K. High Court Brexit Decision
On Thursday of the most recent week the BOE kept policy steady, as expected, but announced that previous future policy guidence for a rate cut had "expired". That meant that prospective policy easings are no longer in the pipeline. The central bank had signaled policy accommodation after the May Brexit vote. Also that day, a three judge high court panel decided that the U.K. government does not have the power to trigger Article 50 for Brexit without consulting Parliament. The government said would appeal that decision. It already had permission to go straight to the British Supreme Court. That court has already set aside time for a four-day hearing on the issue starting on December 7. Hope for a "soft Brexit" saw the GBP rally over the session.
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WEEKLY HIGH IMPACT NEWS:
00:00 CA/US- Clocks fall back one hour
7:15 CH- CPI
10:00 EZ- Retail Sales
00:00 US- Presidential Election
02:00 CN- Trade
09:30 GB- Industrial/Manufacturing Output
18:00 US- 10-yr Auction
01:30 US- CN- CPI
09:30 GB- Trade
16:00 US- Crude
21:00 NZ- RBNZ Decision
13:30 US- Weekly Jobless
00:00 CA/US Holiday (partial)
15:00 US- Univ of Michigan
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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