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The Sellside Reacts: "December Liftoff Is A Lock" But "There Is No Such Thing As A Dovish Rate Hike"

The sellside reactions come tricking in. Here is the first one from Citi's Steven Englander"

Blowout earnings and NFP -- makes December the default and raises questions on steepness of the path

Smashing NFP brings 12-mth average to 235k

AHE at 2.5% y/y, the highest since 2009, no other point has been higher than 2.3% y/y

This pretty much makes December the default barring very surprising weakness in incoming data.
 
The problem with AHE is that in the past there has been very significant negative autocorrelation, so a very strong number has been followed by downward revisions or a weak outcome. However, if a 2.5% is confirmed next month it has huge implications because it would suggest that the NAIRU was probably somewhere in the 5 1/4% - 5 1/2%.  Given the momentum in the labor market it would mean that the Fed would have to move to neutral quickly, and presumably that is a lot higher than 12bps. Still speculative, but a lot will ride on AHE next month.
 
So far, FX market is not making big distinction between FX and EM. With ECB ease expected, EUR trading with EM is to be expected. Weakest currencies are NZD, NOK, EUR, AUD and ZAR. Outperformers are INR, CAD (good payrolls), BRL, MXN (spillover benefit?) and JPY.  S&P futures down about 0.4% since the release.

Barring disaster, this makes December liftoff a lock. It won’t stop the FOMC from being very dovish sounding and reiterating the commitment to a very slow path, as Evans did on TV a few minutes ago. The question is whether the market believes them if the numbers keep coming in on the strong side.
 
Jan 16 fed funds futures now at 30bps – assuming 85-90% liftoff chance now being priced in, this would suggest market will expect fed funds to settle around 32-33bps right after liftoff.

Some other reactions:

Here is Deutsche Bank warning there is no such thing as a dovish rate hike:

This is good news for Janet Yellen, since it is the kind of data that makes the decision easy and will not challenge her credibility when she pulls the trigger. The dollar-positive implications are similarly obvious. The less obvious trades surround equities, because this data raises questions on just how gradual the Fed tightening cycle will be. Certainly it is inconsistent with 'the one and done' thinking on the Fed. The data instead fits with the slogan: 'there is no such thing as a dovish Fed rate hike'.

But to Brown Brothers, it is all smooth sailing from here:

It is difficult to find the cloud in the silver lining as economists are often wont to do. It leaves no doubt about the December meeting being live despite the year-end considerations that some had seen tying the Fed's hands.