Spotlight in Coming Week to Fall on the Fed

February 13, 2017

Fed Chair Janet Yellen’s semi-annual Humphrey-Hawkins testimony before the Senate Banking Committee on Tuesday and House Financial Services Committee on Wednesday could prove contentious, with Republicans in firm control of the government, commodity-fueled price pressure reawakening in the U.S. and around the world, and a severe critic of Fed accommodation, David Malpass, having just been chosen by Donald Trump to be Under Treasury Secretary for International Affairs. In that capacity, Malpass would be a key designer of U.S. trade and currency policy. He wants the Fed to raise rates more quickly and to trim its balance sheet.

Ten-year sovereign debt yields have risen three basis points in the U.K., two bps in U.S. futures, and one basis point in Germany and Japan.

Both WTI crude oil and Comex gold are lower by 0.7% and 0.4%, respectively, to $53.46 per barrel and $1,231.60 per ounce. However, industrial metal prices climbed sharply.

Stocks are mostly higher, too. Markets in the Pacific Rim rose 1.1% in Hong Kong, 0.7% in Australia and Indonesia, 0.6% in China, 0.5% in New Zealand, and 0.4% in Japan and Singapore. Gains so far in Europe amount to 1.1% in Greece, 1.0% in France and Italy, 0.7% in Spain and Germany but just 0.1% in Britain. Concern is mounting the Brexit negotiations will go very bad for the U.K..

The dollar is mixed, rising 0.3% against the yen, 0.2% relative to the peso, and 0.1% versus the kiwi, slipping 0.4% vis-a-vis the punt and 0.1% against the loonie, euro and yuan, while holding unchanged vis-a-vis the Swissie and Australian dollar.

The European Commission released its Winter 2017 Economic Forecast, revising up projected euro area GDP growth for this year by 0.1 percentage point (ppt) to 1.6% and projected 2017 CPI inflation 0.3 ppts higher to 1.7%.

Japan’s cabinet office reported that real GDP rose 1.0% between 3Q and 4Q at a seasonally adjusted annualized rate. That was the third straight quarter to experience slower growth than in the prior quarter. Three components of aggregate demand — personal consumption, public-sector spending and residential investment — made zero contributions to the growth rate last quarter. Net foreign demand enhanced GDP by a full percentage point. A positive impetus from non-residential business investment and a negative one from inventories roughly offset one another. Real GDP also rose 1.0% in full-2016 but was 1.7% higher in the fourth quarter than a year earlier. The GDP price deflator posted a 2016-over-2015 rise of only 0.3%, down form 2.0% in 2015 and 1.7% in 2014. The deflator last quarter was 0.1% lower than in the final quarter of 2015.

German on-year wholesale price inflation accelerated to 4.0% in January from 2.8% in December and -0.3% as recently as September. Mineral oil jumped 16.4% between January 2016 and January 2017, the most since March 2011.

IMF Managing Director Lagarde said the infrastructure spending and tax reform that President Trump plans are fiscal changes that America needs, but she also express concern over the effects of tighter Fed policy and a rising dollar on the global economy.

Ireland’s construction purchasing managers index fell 3.2 points to 55.7 in January, which was even lower than last March’s score of 55.7 but still represents pretty strong growth.

Besides the aforementioned Yellen testimony tomorrow, investors will learn the preliminary estimate for Euroland GDP growth last quarter and the growth rates in member states that day.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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