Politics set to trump data as Fed hike looks dead cert

Fri Nov 18, 2016 11:38am EST
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By Philip Blenkinsop

BRUSSELS (Reuters) - Clues on future U.S. policy under Donald Trump rather than economic data will likely dominate minds and markets in the week ahead given a U.S. interest rate hike in December is now a near-certainty.

Investors are making plans with an implied market probability of a December rate hike in the mid-90s percent, but they are much less sure about what a Trump presidency will mean in the months and years after that.

James Bullard, a voting member of the U.S. central bank's rate-setting committee, said the Federal Reserve will raise U.S. interest rates in December barring a major shock, such as global market volatility or bad U.S. jobs data.

The next monthly payrolls data, for November, is due on Dec. 2. Except for a blip in May, U.S. employers have been hiring comfortably more than 100,000 workers each month since the last rate increase in Dec. 2015.

Rob Carnell, chief international economist at ING, said it would need something catastrophic to prevent such a rate rise, something like a sub-100,000 payrolls figure.

"Then it's all down to the politics, who's Trump going to pick for his cabinet," Carnell said.

"We'll to have to take a view as to whether these people are pro free trade or not as anti free trade as Trump sounded on the campaign trail and what we're likely to get in policies such as fiscal expansion and the dollar."

Fed Chair Janet Yellen said a rate increase was probably warranted "relatively soon" but cautioned there would only be gradual increases in the rate over time.   Continued...

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S. November 16, 2016.  REUTERS/Brendan McDermid