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    IronFX Daily Commentary | Fed holds a meeting “under expedited procedures” | 23/11/2015

    23.11.2015, 10am

    •Fed holds a meeting “under expedited procedures” The Fed announced late last week that it will meet today “under expedited procedures” for a review and determination of the advance and discount rates to be charged. There have been other Monday meetings previously and this could well be just part of the decision making process and not necessarily a major market moving event. However, given that we are just few weeks before the December meeting, the market remains sensitive on any speeches or releases coming from the Fed. As a result, a raise in the discount rate could send a fresh signal that the Fed is ready to begin its normalization process in December and strengthen USD further.

    • Elsewhere, the US crude oil December futures that expired on Friday dipped sharply below 40 on concerns over global supply surplus. Venezuela's oil minister said on Sunday that OPEC cannot allow an oil price war and must take action to stabilize the crude market soon. In a question on how low oil prices could go in 2016 if OPEC doesn't change its policy, he said: "Mid-20s." With the dollar index poised to move higher given Fed rate hike expectations, we see more risks to the downside than up for oil prices.

    • Today is a PMI day: During the European trading day, we get the preliminary manufacturing and service-sector PMI data for November from several European countries and the Eurozone as a whole. All the indices are forecast to have declined with the only exception being the French manufacturing PMI, where expectations are for a slight increase. A decline in most preliminary PMI indices could hurt the bloc’s common currency and could be the trigger for the next leg down on EUR/USD.

    • The US preliminary Markit manufacturing PMI for the same month is also coming out. We expect the market reaction to be limited on this release as the market generally pays more attention to the ISM manufacturing index, which is to be released on the 1st of December. Existing home sales for October are also coming out and expectations are for a decline. However, housing starts and building permits for the same month came out relatively strong, confirming the overall strength of the housing sector. Therefore, I would not expect a modest fall in existing home sales to weigh much on USD.

    • We have one speaker on Monday’s agenda: ECB Governing Council member Jens Weidmann.

    • As for the rest of the week, on Tuesday, the German Ifo survey for November is being released. Expectations are for all three indices to decline. However, both the ZEW indices have recovered as the effects of the Volkswage scandal started to fade away and therefore, we may see a positive surprise in the Ifo indices as well. We also get Germany’s final GDP data for Q3 and expectations are for the growth rate to confirm the initial estimate. As a result, the market reaction could be muted at this release.

    • From the US, we get the 2nd estimate of the Q3 GDP. The forecast is for the growth rate to be revised up to +2.0% qoq from +1.5% qoq. Although this will still point to a slowdown compared to the astonishing print of 3.9% qoq in Q2, given the positive data coming out from the US, we still believe that the economic recovery remains on track. After all, these encouraging data are one of the main reasons the Fed is considering December as an appropriate time for a Fed fund rate hike.

    • On Wednesday, we get the US durable goods orders for October. Surprisingly, after falling or stagnating for two consecutive months, both figures are expected to have increased. The headline figure is forecast to have risen 1.5% mom, a turnaround from -1.2% mom in September, while durable goods excluding transportation equipment are estimated to be up 0.3% mom, a rebound from -0.3% mom previously. The focus is usually on the core figure, where a possible improvement could boost the greenback.

    • The US personal income and personal spending for October are also being released. Both are expected to have risen at a faster pace than in September. Improvement in consumption for the first month of the year’s final quarter could be a sign for a rebound in the US growth rate following the slowdown in Q3. This could add to the growing body of evidence that the US economy is gaining momentum and may support USD. The yoy rates of the PCE deflator and core PCE for October are also coming out.

    • On Thursday, we have a relatively light calendar day with no major indicators or events on the schedule.

    • Finally on Friday, the main event will be the 2nd estimate of the UK’s Q3 GDP. The forecast is for the revision to confirm the first estimate. The slowdown from Q2 shown in the first estimate was primarily driven by weakness in the construction and the manufacturing sectors. However, unlike the first estimate, here we will get details on the expenditure subcomponents, which we expect to show that growth was mainly driven by domestic demand, especially private consumption. The employment report for September showed strong accelerating wages which may have boosted consumption more than expected. Therefore, I see the possibility for an upward revision, something that could strengthen the pound.


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