The Global Markets Weekly – 11/9/15

Posted November 9, 2015 by rvillareal

Will the Fed Follow God’s Plan?[private]

Interest in the timing of the inevitable FOMC action has gotten so intense that one (Republican) Congressman has warned Fed chairman Yellen this week that to start hiking policy rates in December would not be following “God’s plan” in which new things develop in the Spring.  However, the most recent jobs report is following a different plan, making Yellen’s insistence that the December meeting was “live” even “livelier.”

• The October jobs report came in much stronger than expected and suggests that not only is the inventory correction over but international developments are not casting a pall on hiring.
• Every facet of the report was strong, with solid hiring and labor force growth, a steady or rising workweek, and a jump in wages.  In particular, wage gain hit a cycle high of 2.5%.
• For some time, various member of the FOMC have suggested the last thing they needed to see before pushing the tightening button would be the “whites of the eyes of wage inflation.”  Perhaps that time has finally come.

As a result, investors and many analysts, having been whipsawed by the “turn on a dime” FOMC, may think after 8:30 today that maybe Yellen was right.  Still, there is plenty of data to digest before the meetings, with another jobs report and two retail sales reports coming.  Should the data turn soggy again, the three FOMC voters do might not dissent today after a great jobs report (Brainard, Evans, and Tarullo) might dissent in December.  And would Yellen want to start a new tightening cycle with three visible dissents, particularly if the financial markets are unsettled?  Fortunately, God may be more forgiving about the actual timing than investors are.

• U.S.:  A ridiculous number of FOMC members (four) will talk about the economic outlook (Th), might shed more heat than light.  But if the one dove Evans, gets on the tightening train, that would be real news.  Friday’s retail sales report will be the first indication if spending is recovering to the extent jobs already did in October.  Car sales are strong right now, but most other spending is soggy.
• Eurozone: Clearly the stand-out data in the coming week will be the various Q3 GDP data due on Friday (the 13th!!!).  They are likely to show that the Eurozone economy grew in line with the solid showing of the previous quarter. If so, such data will provide even more reason for the ECB not to make any further downgrade to its GDP projections!
• UK: From the just-released Inflation Report, and as this week’s Focus discusses in more detail, it remains clear that productivity data remains as influential in guiding BoE thinking as will that for wages, thereby putting continued emphasis on the Labor Market Report update due on Wednesday. A further fall in the unemployment rate may be due?
• Japan:  In a busy data week which finishes the month’s round of indicators, tertiary Industry Activity will remain resilient. Though the global slowdown may have suppressed its upward momentum, the labor-thirsty service sector still has room to growth. It has been cushioning Japan’s economy and supporting the hope to reach BOJ’s inflation target. l.

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