Intraday Market Thoughts

What Data Will Yellen Depend On?

by Adam Button
May 21, 2015 23:04

If the Yellen-Fed had a single refrain this year it would be data dependency but at some point policymakers need to look at the numbers and decide. The pound was the top performer Thursday while USD and CAD lagged. The Fed's Williams and BOJ decision are due later.  Both of our adjusted EURUSD and GBPUSD neared their final targeta as was confirmed in this week's Premium ideas and charts. EURGBP was stopped out.

Data dependency is more of a question than an answer. Since the Fed has hammered home the point about waiting for good news to hike, the numbers have been almost uniformly soft. It was underscored once again on Thursday with the Philly Fed at 6.7 compared to 8.0 expected, the Markit PMI at a 14-month low, existing homes sales at 5.04m vs 5.23m expected and initial jobless claims fractionally soft.

The US dollar shrugged off the numbers and only took a small step back after 3 days of strong gains but that could change if Yellen indicates some uneasiness at a speech on Friday. If the Fed wants to be data dependent, at some officials have to accept the data for what it is rather than reaching for excuses.

If Yellen indicates less confidence in the outlook the dollar will slide but she's also likely to be careful not to raise alarm bells. Either way, the chances of a September rate fall with every soft economic report.

One person who will almost assuredly brush off the economic data is the Fed's Williams in a speech at 2300 GMT. His San Francisco Fed authored the latest report question Q1 seasonal adjustments. That rhetoric has gone a long way toward the USD bounce this week and don't expect him to back down. In any case, the speech may be a bust because the title indicates it will focus on financial reform.

Up later is the BOJ decision. There is no set time but it's usually out at 0230-0330 GMT. There virtually zero chance of a change in rates or QE but there was chatter on Wednesday about upgrading the economic outlook and that's something that will severely diminish the chance of further QE this year and boost the yen.

Act Exp Prev GMT
Markit Manufacturing PMI (MAY) [P]
53.8 54.5 54.1 May 21 13:45
Markit Manufacturing PMI (MAY) [P]
54.5 54.1 May 22 13:45
FOMC's Williams speech
May 21 23:00
Initial Jobless Claims (MAY 15)
274K 271K 264K May 21 12:30
Continuing Jobless Claims (MAY 8)
2.211M 2.231M 2.223M May 21 12:30
Philadelphia Fed Manufacturing Survey (MAY)
6.7 8.0 7.5 May 21 14:00

Latest IMTs