A Slightly More Optimistic And Hawkish Yellen Seems To Support Rate Rise This Year

It has been by any reckoning a very erratic week in most markets. Equities, precious metals, bond yields, and oil were whipped here and there, up and down after last week’s FOMC vote.

Enter Fed Chair Janet Yellen yesterday afternoon after hours. She said, “It will be appropriate to raise rates" sometime later this year. Well, Ms. Yellen, like the sands in an hourglass the days of our lives run out. We have roughly 13 weeks left in 2015 and two more FOMC meetings, one in October and one in December. That doesn’t leave much room for maneuvering.

Yellen’s caveat was that, (in case you wondered), the raise will happen if underlying trends hold up.

Yellen said FOMC officials “expect that the various headwinds to economic growth will continue to fade, thereby boosting the economy's underlying strength.”

We would take this statement as a major shift except for one thing. She issued essentially the same statement in Cleveland, Ohio, on July 10; in Providence, Rhode Island, on May 22; and in San Francisco, California, on March 27. Hmmm.

Now Ms. Yellen returns to the East Coast to begin her tub-thumping again.

As if on cue, the Bureau of Economic Analysis today revised second-quarter gross domestic product growth upward to 3.9% from 3.7%, and in the final revision (issued in July of 2016) that number could go even higher. On the other hand, Q3 looks far less robust.

Interestingly, the Chicago Fed’s “Financial Conditions Index” is lowering (a positive indicator, not negative). The lower the number, the “looser” conditions are for credit and economic expansion. A year ago the figure was -0.87, now it is at -0.61.

However, all of these numbers create an abstract impression. What counts is the reaction in the trading pits, the analysts’ offices, and in the coffee bars and corner bars of Europe, Asia and North America.

Ahead of the weekend, the U.S. dollar bumped up modestly, though solidly. The yield on U.S. 10-year T-bonds was up very marginally as traders in that sector remain wary. Gold traders stepped back heading into the weekend, knocking some luster off yesterday’s jump up.

Wariness ruled equities trading in New York. The S&P 500 was up most of the day but slipped to the downside as the day ended. The Dow remains up very modestly. The NASDAQ fell mostly on biotech jitters that seem to be part and parcel of reverberations from Hillary Clinton’s attack on big pharma price gouging. The spanking in that sector is long overdue and the fear is not only that Ms. Clinton will be elected – a distinct possibility – but that the sentiment on Main Street and even in the Congress has turned against the ridiculously high American pricing of advanced, bio-engineered drugs.

Crude seems to have found its feet right around the $45 mark. And while we like cheap gasoline as much as the next automobile driver, a stabilization of prices would be a good thing for the economy as a whole, even if that pricing makes either producers or consumers a little unhappy.

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Wishing you as always, good trading,