For the week of August 29 to September 2
The highly anticipated speech by Federal Reserve Chair Janet Yellen came and went on Friday afternoon with potentially less fireworks than were expected. Yellen reinforced the fact that the case for hiking interest rates is in fact getting stronger as the job market continues to strengthen. Although Yellen sees strength, she gave no definite timeline of when these hikes could happen. Following Yellen’s speech, Vice Chairman Stanley Fischer reassured investors that her speech leaves the September policy meeting open for a rate increase, causing losses in equity following a post-speech rally. In order to get a better idea of market reaction to her speech, a 32 percent chance of a September rate hike and a 57.4 percent chance before 2017 were priced in as of August 25 (prior to this speech). This morning, these probabilities sit at 42 percent and 63.6 percent respectively.
The Bank of Japan’s Governor Haruhika Kuroda stated that the central bank has plenty of room to increase monetary stimulus if necessary while speaking at Jackson Hole. In terms of the type of monetary stimulus, Kuroda said each of asset purchases, monetary base changes, and continued negative interest rates could still be utilized. The European Central Bank also came forward saying they may need to take action in the near future if fiscal policy isn’t stepped up.
The price of oil continues to fall as strength in the U.S. dollar continues after Janet Yellen’s speech on Friday morning. In addition to strength in the dollar, markets are beginning to doubt the effect that informal OPEC talks in Algiers will have on the price of oil. Prices are down by 1.39 percent to $46.98 per barrel. After falling by one percent last week, the Canadian dollar is trading down against the U.S. dollar again this morning. Todays expected range is 1.2972 – 1.3072.
Canadian releases this week include GDP on Wednesday, Manufacturing PMI on Thursday, and International Merchandise Trade on Friday. In the United States, releases are expected for Consumer Confidence, Manufacturing PMI, ISM Manufacturing, Trade Balance, Nonfarm Payrolls, and Factory Orders. This morning, releases for both Personal Income and Personal Spending met expectations, growing by 0.4 percent and 0.3 percent respectively in July. Personal Income for June was revised up to 0.3 percent from 0.2 percent and Personal Spending numbers for June were revised up to 0.5 percent from 0.4 percent.
Posted by Concentra Financial Markets