Good morning.
Yellen to take the stand for first time since Trump’s victory
For the first time since the Presidential election, Fed Chair Janet Yellen will testify to congress this afternoon, where she’ll likely be grilled on how the new President-elect’s plans to ratchet up government spending and cut taxes will affect the Fed’s day-to-day activities in setting interest rates. The market fully expects this December’s FOMC meeting to result in another rate hike – a view that’s already being reflected in US bond yields and the strengthening US dollar. Nonetheless, it would be a very significant break of character for Yellen to give too much away. After all, we’ll get another jobs report before the December 14th meeting which could throw the Fed a curve ball.
Markets leaning heavily on expectation of a US rate hike in December
The market currently sees the odds of a rate hike in December at over 90% and it’s easy to understand why. Trump’s post-election rhetoric has been one of increased government intervention and investment in infrastructure which would likely result in renewed inflationary pressures, hastening the rate at which the Fed introduces tighter monetary conditions. As is always the case with these spending drives and their passage through Congress, these plans will likely be contorted and manipulated before they see a green light and the economy sees any benefit.
UK jobs data toes the line, but could signal trouble ahead
The UK jobless rate fell to a fresh cyclical low of 4.8% yesterday, providing Phillip Hammond with some rare good news ahead of the Autumn Statement due next week. Nonetheless, the rise in total number employed contrasted with an increase in the claimant count – a measure of individuals who’ve signed on to receive jobless benefits in the past month. As always, the devil is in the detail: while overall employment rose, the pace faltered, with productivity gains also falling, showing signs that the UK could be approaching (or indeed, has already struck) full employment. As such, there’s only one way to go from here, and a toxic mix of both consumer and producer price inflation in the early months of 2017 could be the beginning of a downturn in the labour market.
The pound was relatively undeterred by the mix-up, as markets appear happy to stay on the side-lines ahead of Hammond’s policy announcements next week, but retail sales at 0930 GMT today, an often volatile data series, could change that. Overall, sales are expected to have risen by 0.4% in October, not a particularly impressive rate of growth ahead of the holiday season.
Have a great day.