Deutsche Bank is now convinced Fed will hike in December
Convinced by the minutes, Deutsche Bank decided to join the consensus awaiting a December rates increase in the U.S.
"We are now in the December liftoff camp," analysts at Deutsche Bank
said in a note Wednesday after the release of the Federal Open Market
Committee (FOMC) meeting minutes.
"The October meeting statement hinted
at the Fed's strong desire to raise rates at the December meeting."
In the recent months, markets have been twitching on fears
over potential side-effects of the first U.S. interest rate hike in nine
years.
Emerging markets have especially suffered by cash
outflows as higher U.S. interest rates mean that investors can likely
find higher, less-risky returns elsewhere.
Deutsche Bank had previously suggested the Fed would stand pat in December, but this view has not been supported by a big number of market players.
The CME Group's Fed Watch increased the possibility of a December rate
hike by eight points to 72% on Wednesday, following the minutes. The Bank of America Merrill Lynch
fund manager survey for November found that 81% of those
surveyed expect a December rate hike, up from 47% in October.
The phrase "Most participants
anticipated that, based on their assessment of the current economic
situation and their outlook for economic activity, the labor market, and
inflation, these conditions could well be met by the time of the next
meeting" appeared to be a turning point for the bank.
The German lender also noted the minutes'
references to committee members' worries they would lose credibility if
they didn't tighten.
"With financial markets now pricing a healthy probability of a
December rate hike, we believe that the bar for liftoff is fairly low
with respect to the incoming economic data leading up to the December
15-16 meeting," the bank said.
Although they expect a weak November nonfarm payroll report, "partially the result of payback from unexpected strength in October, the Fed appears likely to look through any potential November weakness, emphasizing the cumulative improvement over the course of the year."
For 2016, Deutsche Bank is sticking with its forecasts of two rate increases in the first half, with the Fed staying on hold in the second half to watch the cumulative effect of 75 basis points worth of hikes.
