tock markets in Europe and the US have gone back into rally mode with traders responding favourably to hawkish comments from Fed Chair Yellen. She indicated that the Fed remains on track toward raising rates this year, clarifying last week’s muddled mess where the Fed signals got crossed between the GDP upgrade and one member calling for negative interest rates. Her comments related to inflation expected to rebound and the Fed needing to start acting sooner to allow them to move gradually due to the lag effect were very similar to those made by FOMC Vice-Chair Fischer at Jackson Hole last month.
While still leaving the Fed some wiggle room (around the budget and debt ceiling negotiations) Fed Chair did manage to clean up the confusion left in the wake of last week’s meeting, and confirm what other FOMC members have been saying since then. The market reaction of USD and stock gains on hawkish news and declines on dovish developments indicates many traders appear ready for a rate hike and that further delay could undermine rather than shore up confidence. Later today, FOMC members Bullard and George are speaking, both are hawks, but both also don’t get to vote until 2016.
Today’s US Q2 GDP revisions have also boosted the hawkish case. While GDP and personal consumption figures were encouraging, the most important number of the three is the Core PCE inflation, which is a measure the Fed uses. Core PCE rising to 1.9% just a smidge below the Fed’s 2.0% target supports FOMC member commentary that headline inflation is expected to rebound back toward target over the medium term.
USD on the rebound has outperformed nearly all majors today along with gold. Positive comments and data about the economy, meanwhile, have enabled WTI crude oil to bounce back above the $45.00 level. Interestingly,
CAD has been the top performing currency on the day so far, while the other major oil sensitive currency, NOK has been the worst performer as the fallout from yesterday’s norges Bank rate cut continues. WTI posting stronger gains than Brent may explain part of the divergence. Most likely, however, traders have probably figured out that the Bank of Canada is unlikely to cut rates in October due to the Federal election and that anything can happen by December, so yesterday’s Norges Bank driven selloff in CAD may have been overdone.
BlackBerry ($0.13) vs street ($0.09), sales $490M vs street $586M, to produce an Android phone with BlackBerry security
Nike $1.34 vs street $1.19, sales $8.4B above street $8.2B
Significant announcements released overnight include:
US Q2 GDP update 3.9% vs street 3.7%
US Q2 personal consumption 3.6% vs street 3.2%
US Q2 core PCE inflation 1.9% vs street 1.8%
Japan consumer prices 0.2% vs street 0.1%
Japan CPI ex food and energy 0.8% vs street 0.7%
Singapore industrial production (7.0%) vs street (5.3%)
Upcoming significant announcements include:
9:15 am EDT FOMC Bullard speaking
9:45 am EDT US flash service PMI street 55.6
10:00 am EDT US UMich consumer sentiment street 86.5
1:00 pm EDT US Baker Hughes drill rig count previous 842
1:25 pm EDT FOMC George speaking
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