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By Jason Stipp and Jeremy Glaser | 10-08-2015 04:00 PM

Friday Five: 2016 Looks More Likely for Rate Hike

December is still possible for a rate increase, but Fed minutes this week suggest it's becoming less likely. Plus, what the market is missing about Yum Brands, Twitter CEO's uphill climb, and more.

Jason Stipp: I'm Jason Stipp for Morningstar. Welcome to The Friday Five, Morningstar's take on five stories in the market this week.

Joining me with The Friday Five is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for being here.

Jeremy Glaser: You're welcome, Jason.

Stipp: Up first this week: We got Fed minutes on Thursday that gave us a behind-the-scenes look at their last meeting. What is your takeaway?

Glaser: It's a lot of stuff we already knew. They thought that the job market is pretty much fully recovered, if not totally there yet, that inflation remains low, and there's some concern about whether it's going to get up to a 2% level again. Also they were worried about what was happening overseas, particularly in China.

What does this mean for when they are going to raise rates? I still don't think we have an exact date yet. They obviously don't have an exact date yet. But if you look at September's job number, that was much weaker than expected. That raises some concerns about the strength of the labor market. There are no signs yet that inflation is going to come back up, or at least we're going to get signs of that in the next couple of months. Particularly, they think one of the big vectors is that the labor market tightening could create some inflation. So, as the labor market slackens, that maybe means that's less likely.

Things overseas look quieter now; we're not seeing the kind of financial market volatility [we saw earlier]. But all the concerns about China slowing down are still very much there. China is still very much slowing.

It seems like October for a rate increase is pretty much off the table. December is a possibility if we see some strong data between now and then, but it's looking like 2016 is more of a possibility. Stocks rallied Thursday because people think that the rate hike might be coming later. December is certainly possible, but it's becoming less likely.

Stipp: You mentioned China there. We got some clear signs that China really is slowing down in Yum's results. What's the latest on that?

Glaser: As our analyst RJ Hottovy said, Yum Brands' results were the clearest sign to-date that the Chinese consumer is exercising more caution. We saw it in their results, and the shares plunged on this news--both the disappointing results from this quarter but also the guidance and the headwinds that management was describing in China.

There are a lot of things happening in China that are impacting consumers. There were also some company-specific issues that are impacting Yum, things like online aggregators having very aggressive discounting, which is hurting their profitability and their sales in China. But for the most part, it's definitely weak, and looks like it will be below trend for quite some time.

But RJ thinks that investors are overlooking a lot of what's going right for Yum right now. Even if there's some short-term pain in China, long-term it's a great story for restaurants. China's growing middle class is going to want to eat out more, their restaurants are well-positioned, and they are going to be able to succeed over the longer-time horizon. They are also not getting credit for the turnaround that's happened at Taco Bell, the strong results happening there in the United States. KFC outside of China looks like it's doing pretty well. So, he thinks there's a lot of good news coming out of the company. We did lower our fair value estimate a little bit, but even at the lowered estimate, the shares still do look undervalued.

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