Rates still top of the agenda

A busy past week for chairman of central banks, as once again the investment community tries to interpret where interest rates are going around the globe in the coming months. Post Lehman there have been 606 cuts in global interest rates, and over 12 trillion dollars of central bank asset purchases. The Federal Reserve has operated the longest period of zero rates, exceeding the zero rate period during World War 2. Is this about to end? Janet Yellen indicated in a speech this week that the Federal Reserve is still looking to move in December. The latest jobs data on Friday, showing more jobs were created in October (271,000) than the expected 185,000, only raised those expectations. The equity markets in the US appear to have discounted any move by the Fed; the S&P 500 index closed at the level it started the day on Friday, after a minor dip, finishing slightly higher on the week.

The action was in the treasury markets; 2-year yields have now risen to 0.90 percent from 0.77 percent at the start of the week, and the 10-year to 2.34 percent from 2.20 percent. The S&P 500 is now up modestly on the year, but is also trading close to the top of a range it has failed to break through. The dollar also had a strong week on the back of the report. The euro now trades at 1.07 to the US dollar.

In contrast to the Federal Reserve, Mark Carney has almost entirely ruled out any form of rate rises before at least the middle of next year, in the inflation report released this week. Mario Draghi likewise reiterated that the European Central Bank were more likely to add to the current monetary stimulus than take any other course of action. Mario Draghi’s comments may have been influenced in some way by another decline in German factory orders in September, the third monthly contraction in a row.

The last time the Federal Reserve raised rates and the Europe cut them simultaneously was 1994.

Looking for data points in the week ahead, most Federal Reserve Committee members appear to be making speeches, we shall see if they all sing from the same song sheet. In terms of macro Friday’s US retail sales data will be the focus. For Europe, aside from the ecofin meeting at the start of the week, on Friday we get the q3 GDP flash estimates. Expectations are for the Euro area economy to have grown by 0.4% in the third quarter. Any figure below this will only add to the belief that the ECB will act.

As for the UK the release of the latest unemployment rate on Wednesday will make some headlines.

Posted on November 8, 2015 .