More Fed speakers, and more softening up for a rate rise.

Federal Reserve Bank of New York president, William Dudley, said he did not expect a huge surprise or big market reaction when the rise does happen.

Cleveland Fed president, Loretta Mester, said the US economy could now handle a modest 25 basis point increase.

Clearly there is no period of purdah for Fed members ahead of the release of the minutes.

The Federal Reserve Bank of Atlanta president, Dennis Lockhart, who supported a rate hike in September but backed consensus for no change the following month, has said there is more data to evaluate before deciding whether to raise rates in December.

He said the economy was reasonably solid now, albeit with some weak spots, and he would be comfortable with raising rates soon.

And on cue, here comes more weak data, with US housing starts falling 11% last month.

A new paper from the International Monetary Fund suggests quantitative easing should have been put in place in the eurozone earlier than it actually happened, following the problems seen with several members of the single currency. Larry Elliott writes:

Blanket austerity across the crisis-hit countries of the eurozone was self-defeating. Germany’s analysis of what needed to be done was wrong. The European Central Bank (ECB) was slow to come up with a stimulus package designed to offset the demand-sapping impact of wage cuts.

Those were the main messages of an important International Monetary Fund (IMF) intervention into the debate about how the eurozone should have responded to the problems that affected five of its members: Greece, Ireland, Portugal, Spain and Italy. This quintet accounts for 30% of eurozone output.

The traditional IMF cure for a country in trouble is a solid dose of structural adjustment – tax cuts, privatisation and reforms of the labour market – designed to make the domestic economy more efficient, coupled with a devaluation that makes exports cheaper and imports dearer.

This recipe was obviously not available to countries inside the eurozone, because they all share the same currency. Instead, the recovery plan involved internal devaluation, making an economy more competitive through a reduction in costs. Given that pay is the biggest element of these costs, it requires wage cuts – and thumping ones at that.

The IMF paper asks whether this policy actually works. Its conclusion is that if a single country cuts wages, the effect is positive for that economy and the eurozone as a whole.

But if five countries adopt the same strategy at once, there has to be action from the central bank to offset the demand-sapping wage cuts. Put simply, if millions of workers across Europe have less money in their pockets, they will consume less. That will affect their own economies and the economies of other non-crisis eurozone countries that export to them.

Larry’s full analysis is here:

Ahead of the Fed minutes later, Richmond Fed President Jeffrey Lacker has been speaking. He was the only Fed member to vote for an increase in rates at the October meeting (he wanted a 25 basis point rise), and he still seems to be on the hawkish trail. The key is how many others will follow him in December.

Germany is not the only eurozone member to sell bonds with a negative yield. It’s been happening in Portugal too, despite the collapse of the government last week.

The six month treasury bills also had negative yields.

Over in Greece, and more protests today:

The Chinese president, Xi Jinping, has tried to give reassurances that the country’s economy will keep growing despite a recent slowdown. AP reports:

In a speech to a business conference on the sidelines of the Asia-Pacific Economic Cooperation summit, Xi said China is committed to overhauling its economy and raising the living standards of its people.

China’s growth fell to a six-year low of 6.8% in the latest quarter as Beijing tries to shift the economy away from reliance on trade and investment. The slowdown, which has been unfolding for several years, rippled around the world, crimping growth in countries such as South Korea and Australia that were big exporters to China.

Xi acknowledged that China’s vital signs are a concern and it is facing “difficulties and challenges.” But he also alluded to the fact China is growing much faster than western countries, even as it slows.

“China’s positive economic fundamentals and long-term trajectory remain unchanged,” he said. “China’s economy has strong resilience, great potential and ample room for maneuvering.”

The result of the German bond auction was poor, but not a great surprise given record low yields.

And a regional breakdown:

Here’s some charts from the Annual Survey of Hours and Earnings:

Speaking of UK rates, fewer than a quarter of households expect dearer borrowing costs in the next six months.

A survey from Markit said 23% of households polled expected rates to rise within six months, the lowest figure since October 2013 and down from 34% in October.

Travel and leisure shares are slipping back again. Here are the biggest fallers in the Stoxx Europe 600 Travel and Leisure index:

Despite the hawkish tone of the last US Federal Reserve statement, Deutsche Bank believe the chances of a rate rise in December could actually be falling. Deutsche’s Craig Nicol explains:

The focus of today will be on the Federal Open Market Committee minutes from the October 27 and 28 meeting, due out at 7pm GMT. Remember that the hawkishness of the statement that followed that meeting was the start of a big swing in December liftoff expectations.

In fact, prior to that meeting December hike expectations were sitting at around 35%, before rising to 50% or so immediately after the statement. Currently we’re sitting at 66% which is just shy of the 69% high point earlier this month.

It’s worth keeping in mind that while the minutes refer to the October meeting, asset prices have certainly moved fairly materially since that meeting. The S&P 500 is down 1.91% from the close of the 28 October and has declined on 10 of the 14 trading days in that time. The VIX [volatility index] is up over 30% in the same time frame, the US dollar is nearly 2% stronger, 10 year and 2 year Treasury yields are up 9.4 basis points and 12.7 basis points respectively, while WTI [crude] has fallen over 11%. Clearly the moves in the US dollar and oil are the most significant here.

Our colleagues in the US expect the minutes to be more balanced and much less committed to a December hike than what was inferred from the October communiqué. Clearly there is a lot of data left between now and the December 15/16 meeting (including the November payrolls number) and while the latest employment report was encouraging, our colleagues note that growth and inflation numbers could be slipping given the latest retail sales and import price figures. They expect the probability of a December rate hike to fall closer to 50/50 over the next couple of weeks.

Another item for the agenda: the Annual Survey of Hours and Earnings will be released by the UK’s Office for National Statistics at 9.30 GMT.

The report should be available here.

And here is our summary of its importance, from last year’s survey:

The Annual Survey of Hours and Earnings is a closely watched indicator of the UK’s economic health. Each year it shows how much UK workers earn on average and how that compares with the previous year. Policymakers study the Office for National Statistics’ report, especially Bank of England (BoE) officials who set interest rates.

An official report into the near collapse of trouble bank HBOS is due tomorrow and will put the spotlight on both regulators and directors. In a preview, Jill Treanor writes:

The bleakest days of the 2008 banking crisis risk being revived on Thursday when a long-awaited report into what went wrong at HBOS is expected to put fresh scrutiny on the bank’s former bosses and regulators in the runup to the bank’s near-collapse.

A separate analysis to be issued alongside the 500-page official report will analyse why only one former HBOS executive, Peter Cummings, was formally investigated. Cummings, who ran the commercial arm, was banned from working in finance and fined £500,000 for his role in the events that led to the emergency rescue of the country’s biggest mortgage lender and savings institution.

James Crosby and Andy Hornby, former chief executives, and the chairman Lord Stevenson have already been accused of a “colossal failure of management” by the parliamentary commission on banking standards, while the former City regulator, the Financial Services Authority, reprimanded the Bank of Scotland arm for failing to manage its risks properly.

Our full preview is here:

The Federal Reserve is not the only central bank in focus. The Bank of Japan will hold its latest meeting later tonight (in the early hours of the morning UK time in fact). But here’s a preview from UniCredit Research:

The BoJ meeting tonight has become another close call, after Japanese GDP disappointed in the third quarter of 2015, contracting by 0.8% in annualised terms. It is conceivable that the central bank may want to wait before taking any action, to get a better sense of the fiscal measures that will be introduced in the next fiscal year. It is really difficult to forecast the BoJ’s actions given its confusing assessment of the economy. Another steady outcome is thus unlikely to have any greater impact on the yen. Should, however, the BoJ decide to expand its QQE [quantitative and qualitative easing] program, we would expect a sizeable and broad-based negative yen reaction, as investors are not heavily yen-short at the moment.