Published: Thu, October 13, 2016
Economy | By Melissa Porter

Fed policymakers closer to rate hike, but inflation doubts remain

Fed policymakers closer to rate hike, but inflation doubts remain

Concurrently, when the September 20-21 FOMC meeting minutes are released at 14:00 EDT/18:00 GMT today, we should expect to see calls for at least one rate hike by the end of the year. December on the other hand is now heavily priced in by the markets - currently 69% based on Fed Funds futures - with investors coming around to the idea that the Fed is determined to raise rates this year.

As such, while the FOMC minutes are likely to contain shades of hawkishness that keeps markets focused on a potential rate hike by December; as we stated the day after the September FOMC meeting, the doves on the FOMC continue to chip away at the US Dollar's long-run potential by reducing the projected glide path.

As of 2109 BST the yield on the benchmark 10 year US Treasury note was higher by one basis point at 1.77%.

Investors are now turning their attention to earnings. Wall Street had sold off on Tuesday after the third-quarter earnings season kicked off on a sour note and investors anxious about the U.S. November 8 election day. Health-care stocks in the S&P 500 led declines for the second session in a row, while the Nasdaq Biotechnology Index lost 2.5%.

Amid discussion around the upcoming USA election and fluctuation in the oil price, the U.S. OPEC members had reached an agreement last month to cut production, though details on how to execute are still being negotiated. The British pound rose to $1.2207 after four consecutive days of losses.

Overall, S&P 500 earnings are now expected to fall 0.7 percent in the third quarter, marking the fifth quarter of negative earnings in a row, according to Thomson Reuters data.The dollar.DXY, which would also benefit from higher rates, rose to a seven-month high against a basket of major currencies on Wednesday.

In currency markets, the pound was up 1.3% versus the dollar at $1.2267 following a Bloomberg report suggesting Prime Minister Theresa May has accepted to hold a parliamentary vote on her plans for taking the United Kingdom out of the European Union, raising hopes that this would help curb her push for a hard Brexit.

US stocks rose slightly following the release of the minutes, while yields on USA government debt pared earlier gains.

Throughout 2016, the USA central bank has held its current target range of 0.25-0.5 percent steady to avoid interrupting a fragile economic recovery.

Stocks and the dollar were unbudged by that news; for many a December rate increase is a given.

Globally, the FTSE fell 0.5%, the Nikkei added 0.1% and the Shanghai Composite dropped 0.2%.

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