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Markets React to Assortment of Fed Comments as Rate Hike Speculation Continues

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Stocks declined with commodities while Treasuries and swaps rallied as markets digested a heavy dose of central bank speakers.  The initial bid for Treasuries came overnight off the back of dovish comments from the ECB’s Mario Draghi.  Draghi told the European Parliament that “signs of a sustained turnaround in core inflation have somewhat weakened”, hinting that the ECB could be poised to unveil additional stimulus at its next meeting in early December.  Potential options for the ECB include expanding QE beyond September 2016, increasing the number of monthly bond purchases, and expanding the list of eligible bonds.  

The Fed calendar is also quite robust featuring Bullard, Lacker, Yellen, Evans, Dudley and Fischer.  Dudley, Bullard and Evans all expressed with varying degrees of confidence that December will likely be the appropriate time to initiate liftoff.  Yellen didn’t comment on the economy or the timing of a rate hike as her speech was to kick off a research conference on policy transmission and implementation after the financial crises.  Meanwhile, the IMF published a paper today urging the Fed to wait for firm signs of rising inflation and a stronger labor market.

Today’s US economic data appeared supportive of a December rate hike.  Initial jobless claims held steady from last week, close to levels not seen since the early 70s.  A separate report showed job openings, a measure of labor demand, increased 149,000 in September, the third highest reading since the series began.  The JOLTS job openings report is a known favorite of Yellen and appeared consistent with a healthy labor market.



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