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Mon, 20th February 2017

Anirudh Sethi Report

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Archives of “Federal Reserve Bank of San Francisco” Tag

Next Week -Watch out :Week ahead: Greece, Fed minutes, Buffett letter

Don’t be fooled by the the holiday-shortened trading week in the US. Next week promises to give investors plenty to watch, including the Greek bailout, minutes of the Federal Reserve’s last meeting, Bank of England governor Mark Carney’s testimony, retail earnings and Warren Buffett’s annual letter.

Here’s what to look for in the coming days.

Greece

The meeting has also gained additional significance, as the last major one slated before European elections begin next month, starting with the Dutch.

“With the two largest eurozone economies facing elections this year, we believe it is in
their policymakers’ interests to contain any potential risks from Greek disruption,” said economists at Nomura. “We therefore expect some transitory agreement to be reached at least at the eurozone level, with the IMF decision on programme participation likely to be delayed even further”.

Carney testimony

Following Federal Reserve chair Janet Yellen’s semi-annual testimony to Congress, investors get to hear from her UK counterpart when Mark Carney testifies before the UK parliament’s Treasury Committee on Tuesday. Mr Carney’s testimony comes after the BoE upgraded its economic forecast, while leaving its inflation forecast and interest-rate policy on hold.

“Since the inflation report was published two weeks ago, we’ve seen downside surprises to wage growth, inflation, and retail sales,” said strategists at TD Securities. “So even after the IR was more dovish than markets expected, we may see a further dovish tone with the IR testimony given the soft tone of the recent data releases.”

Fed minutes

The Federal Reserve will release the minutes of its last monetary policy meeting on Wednesday, though they may seem dated since investors have just heard from Ms Yellen. In her testimony to Congress this week, she painted an upbeat view of the US economy and warned that it would be “unwise” to wait too long before raising interest rates.

Bank of America economists say they believe the minutes will reflect “a great deal of focus on both upside and downside risks,” even as Fed officials “become increasingly constructive on the outlook for the economy.”

Moreover, any discussion on the Fed’s balance sheet is likely to garner interest. “Yellen reiterated the view that the primary tool remains rates and that the balance sheet will only be addressed once the normalization of the fed funds rate is well under way,” said the folks at Bank of America. “We expect the minutes to reinforce this view, but there might be some discussion among members on the issue.”

Overnight US Market :Dow closed up 107 points.Crosses 20600.S&P 500 -Nasdaq Hitting New High

Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.

The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.

Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.

The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.

Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.

Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.

Federal Reserve Chair Yellen is speaking Monday in the US

Janet Yellen is Chair of the Federal Reserve System. The big boss.

  • She is speaking Monday 19 December 2016
  • 1.30PM NY time
  • 1830GMT
  • Topic is The State of the Job Market
  • Speaking at the University of Baltimore 2016 Midyear Commencement, Baltimore, Maryland

Overnight US Market :Dow closed + 142 points.Now just 243 points away to kiss 20k

Not even the threat of an interest rate hike next week from the Federal Reserve could derail the U.S. stock market’s record-setting run as Wall Street posted its best five days since the presidential election and doubled down on its bet of better times ahead under new political leadership at the White House.

The bullish vibe on Wall Street is best illustrated by the blue chip Dow Jones industrial average, which surged nearly 600 points, or 3.1%, on its way to posting a fresh all-time high on each trading day of the just-ended week.

The Dow, which is up 13.4% this year, is now within 243 points of Dow 20,000, a milestone few imagined was possible at the bottom of the bear market back on March 9, 2009, when the Dow fell to 6,547.05.

The Standard & Poor’s 500 index, Nasdaq composite and small-stock Russell 2000 also finished the week at record levels.

The big gains came even though Wall Street is pricing in a nearly 100% chance of an interest rate hike from the Federal Reserve Wednesday, its final meeting of the year. Wall Street is expecting a quarter of a percentage point rise by the Fed, which would mark the U.S. central bank’s first rate hike of 2016, despite forecasts at the start of the year for three or four hikes.

Following the Fed’s meeting Wednesday, Wall Street’s attention will turn to its policy statement, its updated projections for the economy, inflation and future rate hikes, as well as Fed chair Janet Yellen’s comments during a press conference with reporters.

The big run-up in stock prices, up to this point, has been based mainly on hopes that Trump’s policies will boost economic growth as well as corporate sales and profits

Odds of a December rate rise hit 100%

100ppSo it’s a sure thing then?

Federal fund futures — or the contracts that investors use to bet on interest rate movements — currently imply a 100 per cent chance of a rate rise next month, compared with 96 per cent on Thursday.

The move comes as New York Fed president Bill Dudley on Friday said that “inflation expectations are well anchored”, adding that “we should be increasingly optimistic that we will reach our inflation objectives over the next few years”.

His remarks arrived a day after Fed chair Janet Yellen said that an increase in short-term interest rates could “become appropriate relatively soon”.

Overnight US Market :Dow closed +36 points.

Stocks rose Thursday as Federal Reserve Chair Janet Yellen emphasized that the Fed is likely to raise interest rates ‘relatively soon’, which sent bond yields higher and gave banks a boost.

The Standard & Poor’s 500 index gained 10.18 points, or 0.4%, to close at 2187.12, just 3 points short of its record closing high of 2190.15 set August 15. The Nasdaq composite index jumped 39.39, or  0.7%, to 5333.97, slightly short of its all-time closing high of 5339.52 set September. 22. The Dow Jones industrial average, which hit record highs last week, gained 35.68 points, or 0.2%, to close at 18,903.82. .

Federal Reserve Chair Janet Yellen said again that the Fed is more likely to raise interest rates soon. She testified before Congress, and in prepared remarks, Yellen sketched a picture of an improving U.S. economy. The Fed is widely expected to raise rates when it meets in mid-December. She added that if the Fed keeps waiting now and later raises rates too quickly, that increases the risk of a recession.

Bond prices slipped. The yield on the 10-year U.S. Treasury note jumped to 2.28% from 2.22%. Bond yields rise when investors expect higher interest rates.

Though the election of Donald Trump as the next U.S. president has complicated the U.S. economic outlook, financial markets still think that a Fed rate hike next month is far more likely than not. What’s more interesting to markets is when the ensuing rate hike will be and it’s here that Trump’s victory could impact. Trump has promised to cut taxes and raise infrastructure spending, measures that could boost economic growth and potentially spur inflation. That’s seen a rally in stocks, a sell-off of U.S. bond yields and a concurrent rise in the dollar.

5 things to watch in Janet Yellen’s testimony Thursday

In the Wall Street Journal, in their ‘5 things to watch’ format – Janet Yellen’s testimony coming up at 10 NY time Thursday

  1. All ears will be listening for Ms. Yellen to affirm recent statements from her colleagues that the Fed remains on track for a December rate increase.
  2. Yellen’s view of the market’s election result reaction – including a rise in government bond yields.
  3. The potential economic effects of Mr. Trump’s proposed fiscal policies
  4. Yellen to make the case against political interference in the Federal Reserve
  5. Yellen’s views on the risk of a sharp upturn in inflation

Odds of December rate rise jump to 92%

Is it Donald Trump or the line-up of Federal Reserve speakers or both?

Federal fund futures — or the contracts that investors use to bet on interest rate movements — imply a 92 per cent chance of a rate rise next month, compared with 84 per cent on Friday.

The move comes as investors expect president elect Donald Trump to unleash stimulus that will drive economic growth and push inflation higher. Fed policymakers have previously stated that they were watching for “some further evidence of continued progress toward its objectives” — with one of those objectives being 2 per cent inflation.

The Fed last raised interest rates in December 2015 and is scheduled to begin its next two-day meeting on December 13.

Trump Is Not Seeking Yellen’s Resignation, But Won’t Nominate Her For A Second Term

As we reported first thing this morning, one of the burning questions troubling Wall Street at this moment, is whether president elect Donald Trump plans on reshuffling the Fed, eliminating its so-called “independent” and perhaps going so far as firing or “requesting” Janet Yellen’s resignation. 

To be sure, there has been sufficient animosity between Trump and the Fed chair: recall that in early September, Trump accusedthe Fed of “keeping the rates artificially low so the economy doesn’t go down so that Obama can say that he did a good job. They’re keeping the rates artificially low so that Obama can go out and play golf in January and say that he did a good job. It’s a very false economy. We have a bad economy, everybody understands that but it’s a false economy. The only reason the rates are low is so that he can leave office and he can say, ‘See I told you.'”

 Trump’s allegation made it all the way to the September FOMC meeting during which Hilsenrath asked if it is true that the Fed is keeping interest rates intentionally low for the Obama administration. Yellen responded as follows: “I can say emphatically that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions.”

Additionally, on several occasions Trump has hinted – if not outright stated – that Yellen should resign. Which is why, as we noted in our earlier post this morning, both JPM and Goldman Sachs had to chime in and address the question, with both major banks suggesting that Yellen would easily coast through the end of her term, if not longer.

Odds of 2016 Federal Reserve rate rise climb to near 5-month high

Market expectations of a 2016 Federal Reserve rate rise have climbed to the highest level since early June amid growing anxiety among policymakers over the potential side-effects of historically low interest rates and easing tension about the US election.

The odds of at least one rate increase this year rose on Monday to 70 per cent, up from 67 per cent at the end of last week, according to Bloomberg data on federal funds futures.

Expectations have been slowly rising this month, from about 60 per cent at the end of September, as Fed policymakers have taken a slightly more hawkish tone, inflation has continued to heat-up and uncertainty stemming from the US election has cooled.

Several top Fed policymakers who have spoken this month have pointed to the rising risk of a potentially caustic overshoot in inflation as a key reason to add to the December 2015 rate increase sooner rather than later.