Rate hike odds soar ahead of NFP

August 30, 2016

Investors and traders adjust their positions after the FED revealed its stance toward the rate hike on Friday. The world’s markets are beginning to return to the usual rhythm of the August calm, which was halted by the comments of the head of the US Federal Reserve, Janet Yellen.

Speaking at the three-day symposium in Wyoming, Yellen said that the rate hike odds have increased in the recent months due to the improved labour market indicators and she has expectations of moderate economic growth.

Rate hike odds in December the exceeded 50% while September probability is 33%.

The recent good data on employment and the pace of inflation growth convinced some FED officials on the need to lift off the rate. If not at the September meeting, then at least by the end of the year. Yellen did not specify when the US Central Bank might raise rates again, but her hawkish tone heightened speculations of the increase in the current year.

Meanwhile, not all of the FED officials agree to the short-term time frame of the rate hike. This waiting attitude may be questioned or, on the contrary, supported by Friday payroll and wages data.

PMI gauge from ISM, reflecting activity in the manufacturing sector of the US economy, and preliminary ADP employment change will be released the day before the publication of the Labor Statistics. With the development of the sector data in most major economies.

This week, there is a lot of data on unemployment about the euro area in July, as well as the indicators of consumer sentiment and inflation in August in anticipation of the ECB meeting to be held on September 8th. The UK mortgage lending for housing prices and consumer sentiment reports are due to later this week. On Thursday, investors expect to gauge the Brexit impact from the UK PMI updates.

The euro zone business activity index rose to a maximum of seven months, data showed last week, that mainly due to the services sector rather than the manufacturing sector, but both sectors do not seem to be affected by the UK decision to withdraw from the European Union.

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