Wednesday preview: FOMC minutes could firm December hike expectations

After a quiet day for scheduled economic data and UK company reports, Wednesday's main market movements will likely come from geopolitical developments, with the US Federal Reserve providing interest after European markets close.

At 1400 New York time (1900 GMT) the Fed will release the minutes from October's meeting of the Federal Open Markets Committee (FOMC), which could harden or reduce the markets’ expectations for a December rate hike.

With US monetary conditions having been continuously tightening since April and the market assigning a 66% chance to a December hike, Ipek Ozkardeskaya at London Capital Group noted that the FOMC minutes on Wednesday "could further support the Fed hawks" and perhaps support the US dollar to the end of the year.

In the October policy statement, the committee gave the impression of being less concerned that recent international developments would restrict US economic activity and inflation, which the minutes will likely confirm.

The FOMC also gave a strong signal that it would consider whether or not to raise the federal funds rate “at its next meeting”.

Unemployment in the US has now fallen to a level where the majority of the FOMC believe it is appropriate to raise the federal funds rate to moderate the growth in employment, but, HSBC economists noted, many of the policymakers have emphasised that the pace of rate hikes is likely to be gradual, particularly if inflation and wage growth remain modest.

As well as confirmation about the receding risks from foreign and financial factors, economists at BNP Paribas expected the Fed to show its baseline forecast was on track.

"After two months of slower payroll gains, participants probably emphasized that lift-off plans remained contingent on labor market conditions not deteriorating substantially further," said a BNP note.

"Though their overall tone will likely be more balanced than Fedspeak has been following October payrolls data, it’s hard to see how the meeting’s minutes would reduce the markets’ expectations for a December hike. The strategies for communicating the pace of rate hikes were likely discussed and would further signal a readiness to raise rates in December."

The main US data release of the day is on housing starts for October, due at 1330 GMT.

In September, the annualised rate of housing starts rose to 1,206,000, the quickest since 2008. The pace of building permits slipped to 1,105,000.

"The pace of multi-unit construction has grown rapidly over the past several years, reflecting strong demand for rental housing," HSBC said. "Single-family construction has also picked up, but at a more gradual pace."

"For October, we estimate the pace of housing starts fell back to 1,060,000. We estimate the pace of building permits was 1,125,000."

Wednesday 18 November

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Building Permits (US) (15:00)
Crude Oil Inventories (US) (15:30)
FOMC Interest Rate Minutes (US) (19:00)
Housing Starts (US) (15:00)
MBA Mortgage Applications (US) (12:00)

INTERIMS
Eckoh, HICL Infrastructure Company Ltd, NewRiver Retail Limited, Picton Property Income Ltd, UK Mail Group

FINALS
Avon Rubber

IMSS
IFG Group, RapidCloud International

AGMS
Allergy Therapeutics, Henderson EuroTrust, Jupiter US Smaller Companies , Orosur Mining Inc, Sabien Technology Group, SCS Group , South32 Limited (DI)

TRADING ANNOUNCEMENTS
Hastings Group Holdings

FINAL DIVIDEND PAYMENT DATE
Strategic Equity Capital