Thursday saw most major markets around the world including indices, major currencies, gold and oil tread water holding steady up or down less than 0.5%. Many traders spent the day sitting on their hands unwilling to commit to a direction ahead of Fed Chair Yellen’s speech even though very strong US durable goods orders provided more evidence of a robust US economy and adding to the case for a more hawkish Fed.
Comments out of the Fed have been mixed lately with the street trying to reconcile the short term and long term prospects for interest rates. Although it looks like rates are going to top out this cycle at a much lower level than previous cycles, which can be seen as dovish and supportive of liquidity, it also looks like the Fed could still raise interest rates at least once this year.
Earlier this month, NY Fed President Dudley indicated September remains a live meeting for a rate hike in what looked like a bid to bring back Fear of the Fed and keep doves from getting too carried away. Other Fed members have spoken from both the dovish and hawkish camps. In some ways, the increased transparency from the Fed has become a double edged sword with contradictory comments confusing the markets and eroding the central bank’s credibility.
The spotlight not turns to Fed Chair Yellen’s speech to the Jackson Hole Conference, a forum Fed Chairs have used frequently in recent years to signal monetary policy
direction. Although the street is looking for clarity, she’s likely to use the speech to keep the Fed’s options open, and is unlikely to commit to a move in September. I continue to expect that the Fed will try again to use economic forecasts and the dot plot in September to signal a move in December after the election.
With so many traders focused on the speech, we could see significant trading action in bonds, indices and currencies depending on whether she is seen as hawkish, dovish or neutral. Ahead of her comments, UK GDP and Japan inflation could spark activity in GBP, JPY and respective stock markets. US GDP may not have much impact unless there is a huge surprise and even then traders may wait until after Dr. Yellen speaks.
There have been no major announcements after the US close today
Significant announcements released overnight include:
US jobless claims 261K vs street 265K
US durable goods orders 4.4% vs street 3.4% vs previous (3.9%)
US durables ex transport 1.5% vs street 0.4% vs previous (0.4%)
US capital goods nondef ex air 1.6% vs street 0.3% vs previous (0.2%)
US flash services PMI 50.9 vs street 51.8
US natural gas 11 BCF vs street 18 BCF
US Kansas City Fed (4) vs street (2)
Germany IFO business climate 106.2 vs street 108.5
Germany IFO current assessment 112.8 vs street 114.9
Germany IFO expectations 100.1 vs street 102.4
UK CBI reported sales 9 vs street 0 vs previous (14)
UK CBI distributor sales 17 vs previous (11)
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)
9:30 am AEST Japan consumer prices street (0.4%)
9:30 am AEST Japan core CPI street 0.4%
3:00 pm AEST Singapore industrial production street 0.8%
7:45 am BST France GDP update street 1.4%
8:00 am BST Spain retail sales street 4.3%
9:30 am BST UK GDP update street 2.2%
8:30 am EDT US Q2 GDP update street 1.1%
8:30 am EDT US Q2 personal consumption street 4.2%
8:30 am EDT US Q2 core PCE inflation street 1.7%
8:30 am EDT US advance goods trade balnce street ($63.0B)
10:00 am EDT FOMC Chair Yellen speaks to Jackson Hole Conference
10:00 am EDT US consumer sentiment street 90.8
1:00 pm EDT US Baker Hughes drill rig count previous 491
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