Intraday Market Thoughts

Yellen Correction or Clarification?

by Adam Button
Sep 24, 2015 23:57

Was it a correction or a clarification from Fed Chair Yellen

Upbeat comments on the economy and the potential for a rate hike this year led to a rally in the US dollar. USD had been a laggard on Thursday but her comments sparked a quick rally early in Asis-Pacific trading. Japanese CPI later promises to make it a busy day. 1 of our 2 shorts in Premium Insights in the DAX hit its final 9,400 target from the 10,100 entry. EURUSD, GBPJPY are all in the green, while EURCAD slipped back at a loss.

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Yellen Correction or Clarification? - Cate Sep 24 (Chart 1)

But first Caterpillar

For those who claim the US should focus only about the US, Caterpillar, the world's biggest mining and construction equipment maker cut its 2015 revenue forecast and announced slashing up to 10,000 jobs due to pluning capex in from the energy sectors.

Now Yellen

Yellen took a slightly more hawkish tone than her post-FOMC statement in a speech in Boston Thursday. She said it will likely be appropriate to raise rates this year and that US economic prospects generally appear solid. She added that recent developments should significantly affect the policy path.

We noticed one other small change in language as she said a future tightening will be “quite gradual” rather than simply “gradual” which she said before.

The rhetoric suggests Yellen doesn't want markets to abandon an October or December hike. The US dollar climbed 25 to 50 pips across the board on the headlines. The euro was already backing away from the session high of 1.1296 and fell another half-cent to 1.1171 on the speech.

What strikes more than the content of the speech is that Yellen took an opportunity to address rates. In her tenure, she's rarely made waves except during FOMC statements. That she would address monetary policy so soon after the FOMC suggests she felt misinterpreted. That may mean this round of dollar strength lasts through the Friday close.

But what will ultimately decide whether the Fed hikes is economic data. The latest durable goods orders report showed core orders flat in August compared to +0.5% expected. Shipments were also weaker and that led to some modest downward revisions in Q3 GDP estimates.

Another place to watch closely is USD/JPY. The pair has been in a narrowing range for the past month and bounced off the bottom on Thursday. One event that could trigger another move is Japanese CPI numbers due out at 2330 GMT. The national reading for August is expected to show prices up 0.7% y/y excluding food and energy. A low reading could boost USD/JPY on speculation of more BOJ QE.         

Act Exp Prev GMT
National CPI (AUG) (y/y)
0.2% Sep 24 23:30
National CPI Ex Food, Energy (AUG) (y/y)
0.6% Sep 24 23:30
National CPI Ex-Fresh Food (AUG) (y/y)
-0.1% 0.0% Sep 24 23:30
Tokyo CPI (SEP) (y/y)
0.1% Sep 24 23:30
Tokyo CPI ex Food, Energy (SEP) (y/y)
0.4% Sep 24 23:30
Tokyo CPI ex Fresh Food (SEP) (y/y)
-0.2% -0.1% Sep 24 23:30
Fed's Bullard speech
Sep 25 13:15
Fed's George Speech
Sep 25 17:25
Durable Goods Orders (AUG)
-2% -2% 2% Sep 24 12:30
Durable Goods Orders ex Transportation (AUG)
0.0% 0.1% 0.4% Sep 24 12:30
GDP Annualized (Q2)
3.7% 3.7% Sep 25 12:30
GDP Price Index (Q3)
2.1% 2.1% Sep 25 12:30

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