Hope Ahead of Yellen Testimony

February 10, 2016

U.S. stock futures are higher.  Fed Chair Janet Yellen begins her semi-annual Humphrey Hawkins testimony at 15:00 GMT before the House Financial Services Committee.

Many Asian markets remained closed for the Chinese New Year.  The Japanese Nikkei dropped another 2.3%, and equities fell by 1.6% in Singapore, 1.2% in Australia, 1.1% in India, 0.9% in New Zealand, and 0.8% in Indonesia.  In Europe, by contrast, stocks have thus far climbed 3.6% in Spain, 5.2% in Italy, 3.3% in Greece, 2.4% in Germany, 2.2% in France and Switzerland and 1.1% in Great Britain.

A mixed dollar performance includes declines of 0.4% against the kiwi, Aussie dollar and sterling, 0.2% relative to the loonie and 0.1% vis-a-vis the yen but advances of 0.4% against the euro and 0.1% versus the Swiss franc.  The yuan is unchanged.

Oil bounced up 2.7% but remains appreciably south of $30 at $28.68 per barrel of WTI crude.  Comex gold is 0.4% lower at $1,183.85 per troy ounce.

The 10-year Japanese JGB yield recovered five basis points and is again above zero at 0.01%.  Ten-year British gilt and German bund yields are up by two and one basis points.

Iceland’s main central bank rate was left unchanged at 6.5%.  Such was raised three times last year between June and November from an initial low of 5.25%.

Big night in New Hampshire for America’s outsider presidential candidates:  Trump won the Republican contest with 35.1% of the vote to Kasich’s 15.9% and Cruz’ 11.6%.  Sanders took the Democratic tally in a 60.0% to 38.4% landslide over Clinton.  The European reaction can best be summarized in Tuesday’s Financial Times Op-Ed piece by Gideon Rachman, who wrote “The nation has benefited from a deep political stability, which has contributed greatly to its economic strength and global power.  If America’s immunity to extremism is ending, the whole world will feel the consequences.”

British industrial production sank 1.1% on month in December following a 0.8% slide in November.  December output was even 0.4% lower than the December 2014 level, which contrasts with a 1.0% 2015-over-2014 average annual increase.  Production fell 0.5% between 3Q and 4Q.  Factory output dropped 0.2% in December and by 1.7% from a year earlier.

Finnish industrial production edged up 0.2% on month and 0.5% on year in the final month of 2015, but for 2015 as a whole output fell 1.1%.

Italian industrial production posted declines in December of 0.7% on month and 1.0% on year.  Average output in 2015 was 1.0% greater than in 2014.

Industrial production in France ended 2015 on a much weaker footing than the 0.3% uptick projected by analysts.  Instead, output plummeted 1.6% on month, their largest monthly drop since May 2014.  Still, the level of December production was 2.0% above a year earlier.

Japanese domestic corporate goods prices declined 0.9% in January, the eighth month-on-month decrease in a row, and were 3.1% weaker than a year earlier.  Import prices imparted an even more deflationary impulse, plunging 3.0% from December, 16.6% from a year earlier, and 28.4% compared to the January 2014 level.

Norwegian producer prices fell 10.7% in the year to January, but Norway’s CPI increased 3.0% in that span.

Danish consumer prices dipped 0.4% on month in January and were just 0.6% higher than a year before.

Portuguese consumer prices fell 1.0% on month and rose 0.8% between January 2015 and last month.

New home sales in Australia recovered 6.0% in December following a 2.7% decrease the month before.  Westpac’s Australian consumer confidence index rebounded 4.2% in February after dropping 3.5% in January.

U.S. mortgage applications jumped 9.3% last week, stimulated by falling mortgage rates.  The 30-year fixed mortgage rate declined another six basis points to just 3.91%.

Janet Yellen will have much to explain when she begins her testimony before congress at 10:00 EST (15:00 GMT).  See my preview.  John Williams, President of the San Francisco Federal Reserve, speaks publicly today as well.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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