Expectations for a Dec rate hike gathers pace after Yellen's comments

Thursday, November 05, 2015

US bond yields continued to rise while benchmark stock indices pared recent gains yesterday on the growing expectation that the US Fed would raise interest rates in December. Yields on ten year US treasury notes gained for a third straight session yesterday ending the day at 2.255% and hitting a fresh a seven week high as 58% of market participants surveyed by Bloomberg expected the Fed to raise its benchmark by the December FOMC meeting, increasing from 33% previously.

Yesterday’s release of encouraging ADP employment change data for October strengthened the case for an incoming rates rise after 182K jobs were added, two thousand more than the median estimate compiled by Bloomberg. Today’s release of initial weekly jobless claims as well as tomorrow’s release of non-farm payrolls and unemployment data could convince more investors that a rates rise next month is on the table with a 182K increase in non-farm payrolls expected as well as a modest decline in the October unemployment rate from 5.1% in September to 5.0% in October.

The yen extended declines against the dollar for a fourth straight session during overnight trading, edging towards the 100 day MA as it traded around 121.70. Comments from Janet Yellen stating that a December rate rise remains a “live possibility” encouraged investors to pull out of the safe haven currency and with NY Fed President William Dudley offering additional support to Yellen’s outlook investors were encouraged by the uniform hawkishness from FOMC members. With a number of Fed officials due to speak at various events today investors will be watching closely for any comments that could offer further credibility to a December hike, with particular focus on Fed Vice Chair Stanley Fischer’s speech to the National Economists Club. The dollar index added 0.7% against a basket of major currencies yesterday, rising towards 97.900 with activity early on today cautiously holding onto these gains.

10-year US bond yields rise on hawkish outlook

USGG10YR Index US Generic Govt 2015 11 05 08 26 10

The dollar index extends gains against a basket of major currencies

DXY Curncy DOLLAR INDEX SPOT 2015 11 05 08 25 56

Events for today

0700

DE

Sep

Factory Orders

1000

EZ

Sep

Retail Sales

1200

UK

Nov

BoE Rate

1230

US

Oct

Layoffs

1330

US

Q3

NF Prod. & Labour Costs

1330

US

w/e

Jobless Claims

1530

US

w/e

EIA Nat Gas

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