A decision by the US Federal Reserve this week to not raise rates would be "dreadful", as investors and economists consider an increase a foregone conclusion and have now shifted their focus to finding clues on whether the Fed will tighten faster than expected in 2017.
After lifting rates for the first time in almost a decade this time last year, the Fed has failed to hike further, worried that it could derail what has been a lengthy but frail economic recovery since the global financial crisis of 2008.
But the market's unexpectedly enthusiastic response to Donald Trump's surprise US election victory on November 8 has removed what was seen as the last possible impediment to a quarter percentage point lift in the official US Fed funds rate to 0.5-0.75 per cent, from 0.25-0.5 per cent.
Reflecting this, fixed-income traders are pricing in a 100 per cent chance of a rate rise, and the reaction in markets would be one of shock if Thursday morning's decision did not play out as expected.
"I think it would be dreadful if they didn't [raise rates]," ANZ rates strategist Martin Whetton said. "In terms of being a transparent central bank, it would be the wrong message to send."
With a rate rise locked in, economists are now focused on what they can glean from the Fed's messaging about the path of interest rates into 2017 and beyond, particularly in light of the US President-elect's expected stimulatory agenda of infrastructure spending and tax rate cuts.
ANZ economists expect a hike in June and December, in line with both the market consensus and the Fed's own median prediction of one or two hikes.
"I would say most of us in the market believe the risk is they say, 'Hey, we are looking at two, maybe three, hikes next year,' and in that environment you are talking a stronger US dollar and you would definitely see further weakness in the bond market," Mr Whetton said.
The local S&P/ASX 200 Index on futures trading is set to climb 23 points when it opens on Monday morning, putting it close to 5600 points after the benchmark lifted a healthy 2 per cent last week to a four-month high. Australian investors have been buoyed by a continuing rally on Wall St - the three main indices hit new peaks on Friday when markets in Japan and Europe also rallied - as well as resilience in prices for crucial commodities such as for iron ore and coal.
The release of key industrial production and fixed asset investment data by China's National Bureau of Statistics on Tuesday will be closely watched for any signs of weakness in our major export partner's demand for raw materials. Any such indications would also hurt the Australian dollar, which has stayed relatively steady in recent weeks and recently traded around the US74.5¢ mark.
Local focus on jobs data
While the Fed's decision on Thursday will be the focus of global investor attention, the Australian Bureau of Statistics' monthly employment data will be the highlight of the local calendar.
Economists expect unemployment to remain at 5.6 per cent, and that, monthly ups and downs aside, the trend towards part-time and away from full-time work will continue.
"From a big, fundamental picture, growth is being driven by the services side of the economy and those are the sectors that are typically part-time employing," the Commonwealth Bank's chief economist, Michael Blythe, said.
"We are still unwinding bits of manufacturing, like closing car-part factories and so on, so there are full-time jobs going," he said. "And it looks like the residential construction boom is getting near a peak, so there's another good source of full-time jobs that will be weaker from here."
Also set to be released this week are monthly private indicators of business and consumer confidence, on Tuesday and Wednesday respectively, as well as the ABS's housing price index for the September quarter.
