Markets Wonder What Yellen Will Say Today

November 17, 2016

Thursday is being dominated by Fed Chair Yellen’s morning testimony before the Joint Economic Committee of Congress. It will be her first remarks since Donald Trump was elected president on an agenda of more stimulative fiscal policy. She will not doubt be asked how such might affect the trajectory of central bank interest rates. Other Fed officials, who’ve already spoken publicly, have stressed that these are early days. The size, composition, and timing of fiscal changes are unknown, and so is how the economy performs between now and then. The one near certainty is that a December hike seems inevitable, barring disaster. Yellen is also likely to be quizzed on financial market deregulation, the economic outlook, her personal plans for staying on the job until it ends in January 2018, and perhaps the strength of the dollar.

Dollar strength has paused ahead of the testimony. The dollar is unchanged against the yen overnight and has slipped 0.3% against the kiwi and sterling, 0.4% relative to the euro, 0.2% vis-a-vis the loonie and Swissie and 0.1% versus the yuan. The dollar is up 0.2% against the Aussie dollar and Mexican peso.

Japan’s Nikkei closed unchanged. Stocks rose 0.7% in Singapore, 0.4% in Taiwan, 0.2% in Indonesia and Australia and 0.1% in China and South Korea. Share prices slid 0.3% in India and New Zealand and 0.2% in Hong Kong. The Spanish Ibex, British Ftse and Paris Cac show upticks of 0.6%, 0.3%, and 0.1%. Stocks are down 1.0% in Italy and 0.3% in Germany.

The 10-year Japanese JGB is unchanged. An offer by the Bank of Japan to buy all offers of government debt at a fixed price didn’t draw bites but did send a signal of determination to stop the yield from moving much away from the zero target.

Ten-year British gilt and German bund yields respectively rose a basis point and fell a basis point.

West Texas Intermediate crude oil continued to rebound, climbing 1.2% to $46.12 per barrel as officials in Russia prepare to hold further talks with OPEC about curbing production to stabilize the price. Gold climbed 0.5% to $1,230 per ounce.

Bank Indonesia, which earlier this year had implemented six 25-basis point interest rate cuts to 4.75%, left its BI reference rate unchanged at that level. Officials acknowledged that the Trump victory raises already elevated uncertainties that warrant policy caution, and they trimmed projected economic growth in Indonesia slightly. The rupiah like most emerging market currencies has depreciated since the U.S. election, and this is a worrisome development. The most recent interest rate reduction was made in October.

The U.S. Treasury Department’s so-called TIC data for September revealed a net long-term capital outflow that month of $26.2 billion and a $152.9 billion net outflow on a much broader definition that includes short-term capital movements as well.

Construction output in the euro area fell 0.9% in September, which trimmed the on-year increase to 1.8% from 2.1% in August and 4.1% in July. Construction advanced 1.5% last quarter and exceeded the year-earlier average level by 2.9%.

Flash indications of Euroland consumer price inflation in October were confirmed. The total harmonized CPI rose 0.2% on a 1.6% advance in energy, which lifted on-year inflation to 0.5% form 0.4% in September, 0.2% in July and August, 0.1% in June and minus 0.1% in May. Core inflation stayed at 0.8% for a third straight month, down from 1.1% in October 2015.

British retail sales rose unexpectedly strongly in October. Total volume jumped 1.9% on month and 7.4% on year, while core sales increased 2.0% on month and 7.6% on year.

Australian labor statistics for October showed buoyancy and a continuing rotation of jobs into full-time positions from part-time work. Full-time employees advanced 41.5K, while part-teimes fell 31.7K. The jobless rate stayed at 5.6% for a third straight month, and labor participation was unchanged at 64.4% of the labor force.

Chinese foreign direct investment in January-October was 4.2% greater than a year earlier.

Italy’s trade surplus of EUR 3.67 billion in September was 116% bigger than a year earlier and compares with a surplus of EUR 2.49 billion in August.

Mexico’s index of leading economic indicators sank 0.8% in September on growing fear that American voters would elect Trump president. The Bank of Mexico has a monetary policy meeting today.

Filipino real GDP last quarter was 7.1% higher than a year earlier.

In October, the unemployment rates were at 5.6% in The Netherlands, 6.4% in Sweden and 3.4% in Hong Kong.

European Union car sales last month were unchanged compared to October 2015.

French unemployment of 10.0% last quarter was 0.1 percentage point higher than in the second quarter of this year.

Scheduled U.S. data releases today are housing starts, building permits, the Philly Fed manufacturing index and jobless insurance claims. The main event, however, will be Yellen’s aforementioned testimony.

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

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