Stock markets in Europe and the US have drifted back a bit overnight, trading flat to slightly lower. This appears to be due mainly to bulls being reluctant to add to positions ahead of any potential scheduled or unscheduled developments today. A Russian aid convoy was allowed to enter Ukraine this morning raising some concerns about whether this is a stealth invasion and if it could spark anything. It’s hard to say, as usual with politics, it could get worse, it could all be noise. Gold is up slightly but nothing to write home about yet (although I just did I guess). Economic news has been light ahead of today’s highly anticipated speech by Fed Chair Yellen at the Jackson Hole conference. Below is my preview of what the speech may mean for markets. If you read this in my Asia Pacific Morning note last night, feel free to review again or skip ahead. Yesterday’s action also has made tomorrow’s speech by FOMC Chair Yellen to the Jackson Hole conference (a forum that Chair Bernanke used to preview changes in policy and new programs) particularly important for trading. Multi-year and record highs for stocks have come on anticipation that the Fed will continue to keep interest rates low for a long time to come. On the other hand, USD has been rallying on speculation that the Fed may start raising interest rates sooner than expected with employment improving, the economy running strong and downside risks to inflation shrinking. While the doves have had the run of the roost at the Fed for years, the hawks have been gaining strength as data continues to improve. Earlier today, Kansas City Fed President George (a known hawk) expressed concern the central bank may be falling behind the curve while San Francisco Fed President Williams (a known dove) suggested the first interest rate increase could come in the summer of 2015. The tug of war between hawks and doves among traders may come to a head tomorrow with Chair Yellen’s speech. QE3 is currently scheduled to end in October and because easy QE money has inflated stock prices, the end of the previous two QE programs were followed by 10% drops in indices within three months. Because of this, any statements she makes about Fed plans beyond October could have a big impact on trading in the coming months. With stocks at record highs, anything less than full-on dovishness from the Chair could be seen as a disappointment. At the same time, if she comes out ultra-dovish to try and keep the stock market from crashing, she could undermine the USD rally and unwind some of the pressure gold has been under lately. We could see quite a bit of action in indices and USD on her comments today and action could carry right through to the close with ECB President Draghi speaking mid-afternoon. Earlier today, St. Louis Fed President Bullard indicated he still thinks the first interest rate may come toward the end of Q1 of 2015, which would be less than six months after the end of tapering and only about seven months from now. So the calls to move on rates earlier than next summer continue to grow. Canadian markets have been active this morning on local news. The loonie has bounced around more as traders try to decide whether very strong retail sales or easing Canadian inflation pressures may have a bigger effect on what the Bank of Canada may do in future. Meanwhile, Royal Bank’s positive earnings report and dividend increase kicks off bank earnings season with a bang. More bank reports are due next week. Corporate News Royal Bank of Canada $1.62 vs street $1.56, 5.6% dividend increase Economic News Economic reports released overnight and this morning include: Canada consumer prices 2.1% vs street 2.2% and previous 2.4% Canada core CPI 1.7% vs street 1.9% Canada retail sales 1.1% vs street 0.3% Canada retail ex auto 1.5% vs street 0.3% Economic reports due later today include: 10:00 am EDT FOMC Yellen speaks at Fed Jackson Hole conference 2:30 pm EDT ECB Draghi speaks at Fed Jackson Hole conference 12:25 pm EDT Sat BoE Broadbent speaks at Fed Jackson Hole conference