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Tricky December approaching fast – Nomura

FXStreet (Delhi) – Research Team at Nomura, suggests that the Fed’s December is no longer a “possibility” but a “near certainty” for our clients and lists down the various other client expectations from the major central banks.

Key Quotes

"Fed: 92% of clients expect “Lift-off” in December. 52% then expect a second hike in March 2016. 1-2 hikes in 2016 and 2 hikes or so in 2017.

We are calling for a December lift-off as well, moved up from our previous call for March 2016 after the data took a positive turn.

ECB: Clients have materially shifted forward their expectations for ECB easing and now see a 10bp cut in December, with the lower bound Depo seen at -0.5%.

Clients expectations for a December rate cut and QE extension are in line with our own.

BoE: Client expectations remain at Q2 2016 for lift-off from the Bank of England, unchanged relative to the previous survey in October.

This is consistent with our call for a BoE hike in May 2016.

BoJ: Expectations have diminished for any near-term easing from the BoJ and have been pushed to Q1 2016 or beyond.

At the November BoJ meeting, Governor Kuroda sounded slightly less optimistic on the underlying inflation trend, which could sustain market expectations for BOJ easing. However, at the same time, his emphasis on wage talks suggests the likelihood of easing at the next meeting on 17-18 December is limited; thus we do not expect any action from the BoJ until April 2016.

FX: With the NFP numbers and recent musings from central bankers at the ECB and Fed, it is unsurprising to see an increase in expectations for further downside in EUR/USD, which is the standout result among consensus expectations of USD strength versus EUR, JPY, AUD and GBP (in order of magnitude).

Rates: Considering UST 10yr yields are 21bp higher than they were around the time of our previous client survey in October (see Client views after NFP, 13 October 2015) It is impressive that a further 17bp rates selloff for 2015 is expected (surpassing the 15bp expected last time) highlighting that clients expect this move in USTs to continue but, in contrast and along the “diverging monetary policy” theme, see 10yr Bunds rallying slightly into year end."

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