Deutsche Bank: Chances of a December rate hike in the U.S. are falling

Although Fed Chairwoman Janet Yellen has taken a hawkish stance in her recent speeches, Craig Nicol from Deutsche Bank believes the odds of a rate increase in the U.S. are actually falling.

The Federal Open Market Committee minutes from the October 27-28 meeting will be released at 7 pm GMT.

The hawkishness of the statement that followed the meeting was the beginning of a big swing in December increase expectations.

Nicol writes that prior to that meeting, December hike expectations were hovering near 35%, before jumping to 50% or so once the statement was released. Currently we are at 66% which is just shy of the 69% high point earlier this month.

Although the minutes refer to the October meeting, asset prices have undoubtedly moved fairly materially since that meeting, he says. The S&P 500 is 1.91% lower from the close of the 28 October and has declined on 10 of the 14 trading days in that time.

The volatility index VIX has been up over 30% in the same time frame, the U.S. dollar has been nearly 2% stronger, 10 year and 2 year Treasury yields have added 9.4 basis points and 12.7 basis points respectively, while WTI oil has given up over 11%.

Nicol highlights that the moves in the greenback and oil are the most important here.

"Our colleagues in the US expect the minutes to be more balanced and much less committed to a December hike than what was inferred from the October communiqué. Clearly there is a lot of data left between now and the December 15/16 meeting (including the November payrolls number) and while the latest employment report was encouraging, our colleagues note that growth and inflation numbers could be slipping given the latest retail sales and import price figures. They expect the probability of a December rate hike to fall closer to 50/50 over the next couple of weeks."