Week ahead: FOMC minutes key - Nomura

FXStreet (Bali) - David Fritz, Strategist at Nomura, reviews the key events for the week ahead, in which the most important release will likely be the minutes from the October FOMC meeting, Mr. Fritz notes.

Key Quotes

"This week, the most important release will likely be the minutes from the October FOMC meeting. With expectations mounting for a December rate hike following the strong NFP data last week, market attention will be locked in on any clues the minutes might provide into the FOMC’s thought process, and data criteria, with regard to a liftoff in December."

"The statement itself was more hawkish than expected, given the Committee’s upbeat view on the US economy, the lessened emphasis on developments in international markets, and focusing its language on whether or not to change its target rate “at its next meeting”

"Given the statement, recent comments from Fed speakers, and the strong data, our economists changed their Fed liftoff call to December from March, and the market is currently pricing in roughly two-thirds probability of a December liftoff. Any discussion of the path of future rate hikes would also be important. Fed speeches are unlikely to add much new this week, although there are several on the calendar."

T"he definitive speech remains Chair Yellen’s to the Economic Club of Washington on 2 December."

"The BOJ has its policy meeting on Wednesday/Thursday. We continue
to expect it to maintain its current policy, and we anticipate little in terms of surprises, given how little new data have been released since the 30 October meeting."

"A couple data points from the UK next week could make waves in markets: inflation and retail sales. Our UK economist expects inflation to fall in October, contrary to the BoE’s forecast, and believes that UK retail sales are likely to fall by 1.1% m-o-m but that this is a particularly uncertain release."

"There will be a few data points on international capital flows from Canada, the US, and the Eurozone. The US TIC releases have been interesting, most generally from the perspective of foreign demand for US Treasuries, particularly from foreign official institutions. Reserve selling appeared to lessen in September based on our reserve estimate tracking, and it will be interesting to see if this is also born out in the US capital flow data."

"For the ECB BoP data, it will be, as usual, interesting to see the portfolio flows in and out of the Eurozone, particularly the fixed income flows. While it may be too early to see a change in flows in this release in the context of changing QE expectations, it will be interesting to see how the flows are developing, not least of all to develop a baseline and estimate for potential further escalation of outflows, as Eurozone rates have fallen."

"As we mentioned in previous notes, the stepped-up QE expectations have pushed rates to a level where nonlinearities may come back into focus and cause shifts in portfolio allocations, particularly for reserve managers, which can cause large fixed income outflows and push down EURUSD."
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