Wealthy Nations Daily Update - The FED

So, the Fed’s influential trio came out to play yesterday; all suggesting that a US rate hike in December remains firmly on the table; but the decision remains very data dependant. At yesterday's testimony before the House financial services committee, Fed chair Janet Yellen stated that current domestic economic conditions are “pretty strong and growing at a solid pace” though the spillover from the global economy has been somewhat of a drag. She went on to say that the committee has been expecting the US economy to “continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term”, adding that “if the incoming information supports that expectation then our statement indicates that December would be a live possibility.” Markets were quick to react to Yellen’s hawkish comments, with futures hiking up the probability of a rate hike at the final meeting this year to 58%; from 50% before the statement, and just 33% last month. Treasury yields spiked higher, with the two-year yield racing to its highest level since early 2011.

Yellen did discuss the fact that inflation is running way below the Fed’s 2% target adding that one of the main reasons is the “declines in energy prices”. Incidentally, having peeped above $50 intra-day yesterday, Brent Crude fell around 4% over the day and the dollar rallied 0.82% (measured by the DXY Index); clearly not the most ideal conditions required by the Fed. In fact earlier in the day, vice-chair, Stanley Fischer said “We’re not that far from the 2 percent target, when the price of oil stops falling and when the dollar stops appreciating”. Meanwhile, wage inflation was on Fed President William Dudley’s mind, who reiterated Yellen’s “live possibility” but also added that he would like to see what data shows before confirming a rate rise at the December 15-16 meeting.

Softening growth in China has been of some concern to the Fed after policymakers intervened in the stock market and lowered the renminbi peg against the dollar in August. However, these concerns seem to have abated as the Chinese bourses have rallied into bull territory; the Shanghai composite is up over 20% since the August lows and the offshore renminbi has appreciated over 2% against the strong dollar (which has rallied 3.7% during the same period).

Tomorrow sees the release of US employment data, having disappointed in September, we expect the Fed will be eagerly awaiting the nonfarm payroll print which the market expects will once again come in below 200k; at 182k. The market consensus is that unemployment will fall to 5%, which the Fed read as close to full employment. 

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.