James Knightley, analyst at ING Bank noted that the firm US data yesterday and
supportive comments from Janet Yellen suggest the chances of a December Fed rate
hike are rising.
Key Quotes:
"The October reading
of the ISM non-manufacturing report looks very strong. The composite activity
index has risen to 59.1 from 56.9 (consensus was 56.5). It has only been higher
twice in the past seventeen years (July this year and August 2005).
The
details show that both new orders and business activity are roaring ahead (62.0
and 63.0, respectively, relative to a break-even level of 50) while employment
improved again to an incredibly strong 59.2 reading – historically consistent
with service sector employment growth of nearly 400k! With the ADP report
posting a 182k gain today and jobless claims continuing to slide, this should
more than offset the concern from the ISM manufacturing employment index dipping
into contraction territory on Monday. There was even good news from the export
orders component, which rose to 54.5 from 52.5, leaving it well above the
6-month rolling average.
It does therefore appear that while the
manufacturing sector remains under pressure from dollar strength and external
demand weakness, the rest of the US economy is looking in good shape. If this is
backed up by a respectable payrolls report (and hopefully a rise in average
earnings) on Friday it will look increasingly likely that the Federal Reserve
will come down in favour of hiking in December. This view was also supported by
Fed Chair Yellen’s comments yesterday that the economy is “performing well” and
that a December moves was a “live possibility”.
