STILL A GREEN LIGHT FOR LIFTOFF
The traffic lights continue to flash green for a rate-hike in a few weeks’ time. The odds of a hike have hardly changed over the past few weeks, with expectations of between 65%-70% since the well above consensus employment report earlier this month. While data has been more mixed recently, we think that an improving consumer inflation profile trumps the generally weaker manufacturing and export data. Fed speak also remains on message, with most signaling the willingness to start the liftoff process in December, while attempting to shift discussions on the timing of future hikes. There was little deviation from this message in today’s Fed minutes, with December discussed prominently as a possible meeting to start the hiking process. The wild card created by the horrific terrorist events over the weekend continues to remain a market unknown, although the market’s ability to remain constructive this week removes a possible uncertainty for the Fed to consider, at least for the moment. In contrast, concern over European consumer sentiment makes the argument of additional QE from the ECB in 2-weeks that much more convincing.