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 her previous reference 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 uncertainty over whether recent rises in core PCE inflation being normal fluctuations or the start of a trend and that she thinks the current neutral rate (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 likely isn’t in a hurry to raise interest rates in April.
Her comments sent USD sharply lower, sparking rallies in gold and a number of major paper currencies with AUD and NZD being the biggest beneficiaries but CAD, EUR and GBP also posting significant gains on the day.
Crude oil spent the first part of the day under pressure but rebounded moderately in the afternoon along with other markets. API payrolls improved in that they didn’t go up as much as last week, so we could see more activity around tomorrow’s DOE inventory reports.
Tomorrow brings ADP payrolls but it would take a really big surprise at this point say 300K+ to change the dovish Fed perceptions that were reinforced by today’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.
There have been no major corporate announcements after the US close today
Significant announcements released overnight include:
US API crude oil inventories 2.6 mmbbls vs previous 8.8 mmbbls
US consumer confidence 96.2 vs street 94.0
Canada industrial prices (1.1%) vs street (0.2%)
Canada raw material prices (2.6%) vs street (0.9%)
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
10:50 am AEDT Japan industrial production street (1.7%)
12:45 pm AEDT China consumer sentiment previous 111.3
9:00 am BST Norway unemployment rate street 4.5%
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