Fed Chairwoman Yellen’s Semiannual Congressional Testimony Sees Bonds Bid and Dollar Sold
In her testimony before the Senate Banking Committee yesterday, Federal Reserve Chair Janet Yellen highlighted the Central Bank’s intention to stay patient on rates. Echoing the latest FOMC Meeting Minutes, Yellen did confirm the willingness to raise rates if the data supports such activities, but feels that such an increase is not foreseeable in subsequent FOMC Meetings. She was optimistic on the outlook for wage growth but underlined that inflation was well below the 2.00% targeted by the Central Bank, blaming transient issues like weakened energy prices for the drop. Based on the commentary, traders are expecting a rate hike in the second half of the year. These comments saw the dollar selloff and U.S. Treasuries well bid with the yield on the 10-Year Note falling below 2.00%.
Meanwhile, after reopening following the Lunar New Holiday, China’s latest HSBC Manufacturing PMI figures expanded modestly, rising back above the 50 threshold to 50.1. However, looking below the headline numbers shows some strong indications that the Chinese manufacturing sector is facing a difficult outlook as employment drops and new export orders contract. Expectations are high for another round of stimulus from the People’s Bank of China in the form of monetary easing, just as the Yuan hits 30-month lows. Gold prices rose in conjunction with the end of the holiday as physical buying coupled with a weaker dollar pushed gold firmly back above $1200 per troy ounce.
The latest API crude stocks data released yesterday showed that oil inventories continue to build, sending crude oil prices sliding towards another major support level at $48.08. Inventories grew by an astounding 8.9 million barrels, leading traders to raise expectations for today’s EIA release at 15:30 GMT. Forecasts are for stockpiles to gain an additional 3.983 million barrels, but based on recent figures and record output levels there is a strong probability that the measure will trounce estimates. Any beat of expectations will likely send prices lower and confirm the fundamental oversupply problem facing the energy markets.