Yellen Speaks and Markets Shrug

It seemed like business as usual today in the various markets that make the world go ´round.

The U.S. dollar was certainly stronger, although, except against the yen and Swiss franc – major haven currencies, there was nothing terribly unusual in the uptick. The greenback was up versus the yen by 1.35% and versus the franc by 1.20%.

Gold in so-called regular trading would have been up significantly but the dollar strength weighed and pushed it into the red.

At the gathering of major central bankers in Jackson Hole, Wyoming, Chairwoman Yellen said improvements in the American labor market and expectations for moderate economic growth have bolstered the case for an interest rate rise, supporting what the rate futures markets have been baking in for some time.

"Her comments still fall a little bit short of what dollar bulls would want to see in that she doesn't make a case for an immediate increase, still keeps the outlook data-dependent and then went on to talk a great deal about how the Fed plans to deal with future recessions," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

We shall see. The second quarter growth rate in the U.S. was scaled back from 1.2%to an even more anemic 1.1%, although the figure is better from the skeletal 0.80% growth we saw in the first quarter.

Issues with business spending are plaguing the world economy. In fact, it shrank in each of the last three fiscal quarters. Luckily, consumer spending has been acting as a counterweight to the very weak business investment. It may be that business spending is now poised to catch fire again.

Between Yellen’s hint of bullishness and the lackluster growth revisions, equities felt besieged. The Dow Jones Industrial Average was down nearly half a percent. The S&P and NASDAQ got off easier, with the tech-heavy NASDAQ faring the best of the Big Three.

Oil was stronger today, obviously overcoming dollar robustness. But long-term our take on oil is steady to bearish on fundamentals.

Our interpretation of Janet Yellen’s and Stanley Fisher’s speeches in Jackson Hole today is that one made a dovish-hawkish speech while the other made a hawkish-dovish speech.

Both speeches stressed that the Fed’s decision will be data dependent. We’re glad that nothing has changed in that respect. It seems all the ideological arguments have been wrung out of the discussions at the meetings except perhaps from perennial hawks like Esther George, President of the Kansas City bank.

We shall see what data tells us come next Friday, September 2, when the August employment report is issued by the Labor Department. It will be the last labor report released before the FOMC’s next meeting on September 20–21.

Fittingly, that begins the Labor Day holiday weekend in the U.S.

Wishing you as always, good trading,