Interest rate hike possible
KEEPING SCORE: Japan’s benchmark Nikkei 225 added 0.6 percent to 19,242.14 while South Korea’s Kospi inched down 0.4 percent to 2,041.15.
This is a “resounding response” to doves on the Fed who doubted that low unemployment would lead to higher inflation, a relationship known as the Phillips Curve.
On Thursday, Atlanta Fed President Dennis Lockhart said the U.S. central bank’s last policy statement was deliberately trying to convince investors of a possible December rise and was successful in doing so.
The Indian markets are likely to open lower on Thursday after Federal Reserve Chair Janet Yellen said a December rate hike would be a “live possibility” if the incoming economic data supports such a move.
The dollar strengthened to more than a three-month high against the euro after fresh signals by the Federal Reserve and upbeat USA numbers for jobs, trade and the service sector bolstered expectations for higher interest rates next month.
Solid payrolls data later in the session could seal the case for a December rate hike. The contract slumped $1.58, or 3.3 percent, to close at $46.32 a barrel on Wednesday as Yellen’s comments pushed up the dollar.
On Friday, however, investors will digest the Labor Department’s nonfarm payrolls report for October.
Traders have stuck to bets all year that the frequency of interest-rate increases would be even slower than Fed officials’ forecasts. That alone could be enough to cause the Fed to move on a rate hike this December, as Yellen herself hinted at.
The British pound fell 1.2 percent on Thursday, its biggest drop since late August, after the Bank of England’s governor dismissed the view it would raise interest rates shortly after the Fed. October could see an increase of 180,000 to 190,000 jobs, a touch below the 200,000 plus monthly increases seen over the last couple of years. When asked directly about when rates will be going up, Yellen replied, “The committee does feel that moving in a timely fashion – if the data and the outlook justify such a move – is a prudent thing to do”, she said.
“Markets are still digesting what Yellen said yesterday and whether it means multiple rate hikes ahead”, Peregrine and Black trader, Markus Huber, said. Brent crude, which is used to price worldwide oils, fell 60 cents, or 1.2 percent, to $47.98 a barrel. But Valentin Marinov, head of G-10 FX research at Crédit Agricole, said that the threshold for a rate increase in December-and for further strength in the dollar-isn’t so high.