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Stocks surge between dovish Yellen speech and ADP Payrolls

Ending a few days of sluggishness, stocks soared following yesterday’s speech from FOMC Chair Yellen who set the record straight on where the US central bank stands on interest rates following recent contention between duelling factions at the Fed.

Dr. Yellen came out clearly on the dovish side, confirming a slower pace of interest rate increases are planned due to global economic and financial market volatility. She dropped the reference she had previously made to April being live for a rate hike suggesting the two hikes currently forecast for this year may come in June and December before and then after the party conventions and the Presidential election campaign.

She also make comments related to recent rises in core PCE inflation being normal fluctuations rather than the start of a trend and also that she thinks the current neutral rate for Fed Funds (neither expansionary nor contractionary) is currently near zero but can rise if inflation picks up. These comments can also be seen as dovish, indicating that she doesn’t think the Fed is falling behind the inflation curve and therefore isn’t in a hurry to raise interest rates in April.  

In addition to igniting the currency rally in stocks, her comments sent USD down sharply A number of currencies have rallied initially and paused at higher levels with some of the biggest beneficiaries including gold, NZD and RUB. GBP, EUR and CAD started out strong yesterday but have been backsliding this morning.  

Crude oil has been on the rebound overnight clawing back some of yesterday’s losses in tandem with other markets. API oil inventories improved in that they didn’t go up as much as last week, so we could see more activity around today’s DOE inventory reports.

This morning brings ADP payrolls with the street expecting an increase of about 200K jobs again. It would take a really big surprise at this point say 300K+ to change the dovish Fed expectations that were reinforced by yesterday’s speech from Chair Yellen.

Speeches from Chicago Fed President Evans Wednesday and NY Fed President Dudley Thursday may reinforce the dovish case with the next comments from the hawkish faction not scheduled until Cleveland Fed President Mester speaks on Friday.

Lululemon shares may attract attention today after the yoga and athletic clothing company reported earnings per share of $0.85 for its latest quarter above the $0.80 the street had been expecting with same store sales rising by 5% and total sales or $704M. Guidance for continued sales growth in the coming year may help to support the current recovery trend in the shares.

Strong sales and earnings at Dollarama along with a dividend increase and management change may attract trading interest today. This result can also be seen as a sign of the times as discount stores are countercyclical in some ways. This suggests that some regions of the country (particularly those dependent on oil and gas exploration and production) have been hit really hard and are in recession while Canada continues to work at rebalancing its economy.

Corporate News

Lululemon    $0.85 vs street $0.80, same store sales 5%, guides neat year sales to $2.29-$2.34B up from $2.06B this year

Dollarama     $1.00 vs street $0.92, 11% dividend increase, same store sales 7.9% above street 5.8%, Neil Rossy to replace Larry Rossy as President and CEO on May 1

Economic News

Significant announcements released overnight include:

US API crude oil inventories        2.6 mmbbls vs previous 8.8 mmbbls

Japan industrial production        street (1.7%)
China consumer sentiment        previous 111.3

Norway unemployment rate        street 4.5%

Upcoming significant announcements include:

1:00 pm BST        Germany consumer prices        street 0.1%

8:15 am EDT        US ADP payrolls            street 197K vs previous 214K

10:30 am EDT        US DOE oil inventories            street 3.1 mmbbls
10:30 am EDT        US DOE gasoline inventories        street (2.5 mmbbls)

1:00 pm EDT        FOMC Evans speaking


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