Daily Market Color

Markets Appear to Be Getting Comfortable Preparing for First FOMC Rate Liftoff in December

Jeff Davenport

U.S. stocks are rallying again today, indicating the market’s ability to absorb the international terror threats post-Paris, along with the continued expectation of a Fed tightening in December.  The highlighted economic data today included Housing Starts and Industrial output, both of which came in weaker than expected.  That said, core manufacturing did show positive signs vs. the previous month, despite the drag on overall output from the energy sector.

A number of Fed governors were on the tape today as well, indicating their continued support for a December rate hike.  As shown in the chart below, the strong jobs and improved mortgage delinquency figures, point to a backdrop that would give the FOMC substantial support for coming off the 0 – 0.25% short rate policy.

Bond yields and swap rates have drifted up slightly across the curve.  The dollar is generally firmer, while commodities are mixed, with WTI oil hovering just above $40 per barrel. 

The market will be scrutinizing the October Fed minutes released today for further clues, but a first 25 basis point move in December seems to be a reality the markets have come to expect and be prepared for.  That said, we feel the sanguine acceptance of a Fed hike, is unlikely to lead to as little market volatility in December as some seem to be expecting.

Jeff Davenport

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