Chinese Reminbi regime change, US fiscal standoff

There are two specific political/policy uncertainties which could serve as another deterrent for the Fed, even if the data evolves as expected. In China, the uncertainty around the RMB is an important risk factor. PBoC is trying hard to stabilise USD/CNY exchange rate via FX interventions and capital controls at this moment. 

The concern is a vicious circle of depreciation and capital outflows. The PBoC may succeed in stabilising the situation in the short term, but given the expected divergence between China and US' monetary policy over the medium term, the trade-off between stable currency and lowering domestic interest rates will become increasingly challenging for the PBoC. 

When and how the PBoC will resolve this dilemma could have enormous impacts on the global market, as the August 11 regime change painfully illustrated. Although a risk, the chance of PBoC allowing a free-floating RMB is limited by the year-end.

In the US, the government shutdown is another potential roadblock. Speaker Boehner's resignation last week means that Congress will probably extend funding until December 11, setting up a potential standoff on both the budget and debt ceiling in close proximity to the December 16 FOMC meeting.

"If the Fed decides not to hike in December, the next window of opportunity may not open until summer of 2016. In China, the structural slowdown is likely to resume in early 2016. In addition, the seasonal Q1 weakness will probably be repeated again for reasons that not entirely understood", says Societe Generale. 

This, combined with the well-known seasonal problems with US residual seasonality likely will act as deterrents during the winter months.