“The knee-jerk reaction in other terrorist attacks over the last decade has been a rush to safety, including aggressive buying in the U.S. Treasury markets”, said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.
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From Ghana to Zambia, African currencies have been among the worst hit by a slide in investor sentiment toward emerging and frontier markets as the Fed prepares to remove stimulus.
Must Read: Could December Rate Hike Be Good for Stocks?
The stronger dollar has helped depress the key personal consumption expenditure (PCE) core price measure, which is at 1.3 percent.
“I see the risks right now of moving too quickly versus moving too slowly as almost balanced”, he said, explaining that the lingering hangover from the financial crisis and 2007-2009 recession may have depressed the so-called neutral rate of interest and that even though the Fed was near zero, “the current monetary policy stance is not exceptionally stimulative”.
Fed members have been for the most hawkish in the press, but so far they have kept a unified front around Chair Janet Yellen.
“It seems increasingly likely the Fed will start a slow rate hike cycle in December”, says a note from Dutch bank ABN Amro, “resulting in a stronger US Dollar versus the Euro, Yen and precious metals”.
As the hike will widen the difference between lending and borrowing interest rates, banks will be more willing to ease lending standards, which will further heat up the housing market.
Auto sales, though still at a high level, unexpectedly dropped 0.5%, taking back a portion of the 1.4% increase recorded in September. However, the evidence suggests doing so is still a coin flip, as there is evidence to suggest that they should raise rates and also perhaps stronger evidence to suggest they shouldn’t.
“Avoiding a Japan-like experience, in which inflation expectations have become unanchored to the downside, should be an important consideration in the conduct of monetary policy”, Dudley said. Authorities in the West African nation were forced to turn to the global Monetary Fund for loans of nearly $1 billion this year, while Finance Minister Seth Terkper has pledged to rein in spending to curb debt.
“Recently, we have seen an increasing number of cities reporting a sequential home price increase, a trend which we think continued despite a slowdown in home sales growth in October”, said Rob Carnell at ING.
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After holding hearth in October, Fed officers have yet one more probability to carry charges from their extraordinary close to-zero threshold earlier than the top of the 12 months. This could all change with the December FOMC meeting and the much awaited interest rate hike before the end of the year. “Investors are confused as to where to look for a reference point, because against that backdrop people are anxious that yields will go up and they will lose money in bonds”. And it ranks in the 99.9th percentile of the widest spreads over the past 10 years. “That makes me nervous”, Evans commented in Chicago.
