marctomarket.com / by Marc Chandler / October 9, 2016
High frequency economic reports will be not be among the key drivers of the capital markets in the week ahead. The light schedule, consisting mostly of industrial production in Europe, inflation for Scandinavia, and US retail sales, will have minimal impact on rate expectations.
A November rate Fed move was never very likely. The September employment report needed to be amazingly strong to boost the chances, and it was not. To overcome tradition, and the logistical difficulty of arranging a unscheduled press conference, without word leaking out, a greater sense of urgency would need to be present. Recent comments by the Fed’s leadership, especially most recently Fischer and Dudley expressed no such thing.
Our own calculation based on the November Fed funds futures contract that the market is discounting about a 7% chance of a hike on November 2. The CME puts the odds a little above 10%, while Bloomberg has it at 17%. The most important real sector data in the week ahead is the retail sales report. Like the employment data, a solid even if not spectacular retail sales report is expected. American households are not shopping like they did in Q2 when consumption rose 4.3% at an annualized pace, but a 2.8%-3.0% rate should be sufficient to lift growth above what the Fed now estimates as trend (1.8%).