FOMC seen keeping the powder dry ahead of December

Today’s Federal Reserve rate decision will likely be a placeholder for the December meeting. Given the healthy growth in US stock markets and the comfortable absorption of the Fed’s policy plans into US treasury markets, it’s unlikely the FOMC will want to upset the apple cart at this point in time. With GDP, labour market and inflation figures in the US still clouded by one-off effects from the Atlantic hurricane season, it’s also too soon for the board to reconsider their assumptions for the current state of the US economy. Once today’s rate decision is out of the way, the market can remain fully focused on December as the next ‘live’ meeting for a rate hike.

Elsewhere, as the administration craves some political good news after Monday’s indictments, plans to reveal the tax reform today have been delayed. There was always concern that tension between the House and the Senate would result in some sort of compromise, but it was believed that an agreement would have been reached by now. Nonetheless, we now look to Thursday as a bumper day for the US economy with not just tax plans now due to be released, but also an announcement on who will take up the Fed chair position after Janet Yellen departs in February. The money’s still on current Fed governor Powell, but both these decisions could be easily delayed again.

Economic data looks particularly healthy ahead of Nonfarm Payrolls

Labor market indicators have all been pointing in the right direction in recent weeks and this Friday’s Nonfarm Payrolls is expected to follow suit. With jobs growth potentially topping 300,000 over October we could see the best set of figures for years. What’s important for this release is context and the longer-term average. Last month’s negative reading will factor into this heavily and smooth out these short term fluctuations, so noise will run high on Friday, but clarity will run low.

This morning’s ADP Employment Change numbers have followed the recent trend, leaping to job gains of 225,000 from 110,000 in September.

UK Manufacturing PMI shows confidence is still running high – but margins need to follow suit

Today’s manufacturing PMI figure from the UK shows a sector that’s running high on confidence. Today’s release marks the 15th straight month of growth and the broad strength in all manufacturing subsectors suggests this streak isn’t coming to an end anytime soon. The release wasn’t completely rosy though as companies reported price pressures emerging across the board: selling prices have been hiked higher at the fastest pace for over six months as competing demand for raw materials and a weak domestic currency constrict margins.

Ultimately, it’s this margin pressure and not headline confidence that will determine the health of manufacturing over the next six to twelve months – particularly against the backdrop of rising interest rates and Brexit-related political uncertainty.

The day ahead

Outside of the Federal Reserve rate decision, a speech from the Bank of Canada governor Poloz could shake the Loonie and Australian trade balance figures are due this evening.

Have a great day.