Tag Archives: Janet Yellen

US rates: Is Yellen set to spoil the party for commodities?

This week, Mike van Dulken from Accendo Markets looks into his crystal ball ahead of Janet Yellen’s speech on Friday…

All eyes (and ears) will be on her majesty the US Fed chair Janet Yellen this Friday, when she delivers what could be major market-moving speech at the Kansas City Fed Economic policy symposium in Jackson Hole, Wyoming. It is hoped that her talk will include hints (both clear and, of course, cryptic) about the path for US monetary policy. This is because the US Federal Reserve is the only major central bank fortunate enough to be in the position of being able to tighten policy post-crisis. And the reach and influence of the world’s reserve currency (the US Dollar) is far and wide as commodity traders well know.

Fed members have sounded hawkish of late, suggesting a rate hike might indeed be warranted sooner than markets are pricing in, but the US dollar remains well off its summer highs. In fact, it’s not far from its summer lows with a rising trend of support going back four months. We believe this provides Yellen with the breathing space she needs to take a rather hawkish tone, without it resulting in so much US dollar strength that it actually prevents her and her committee from voting for another hike in September.

We still see September as highly unlikely. Even December to us is off the cards when you take into account political event risk on both sides of the Atlantic (Trump stateside; Spain and Italy in Europe). Yes, there are US data points suggesting a US rate hike could be due, but surely not while other central banks are doing the polar opposite. The European Central Bank is widely expected to add to stimulus on 8 September while the Bank of England updates us on 15 Sept and the Bank of Japan could move again towards the end of next month.

Don’t forget that every step the latter group takes to ease policy further, which serves to weaken their own currencies, has the offsetting effect of strengthening the US dollar. A US rate hike, or a strong hint of one being imminent, therefore represents a risk for Yellen. It will potentially send the US dollar much higher than the Fed might be comfortable with, thus becoming a hindrance for exporters. Even if it gives consumers more bang for their buck in terms of imports.

The Fed has been at pains to hammer home a message of a ‘slow and gradual’ pace of future hikes, aiming to keep the US dollar index from returning to flirt with the 100 mark it traded around at the beginning of December and end of January. Would it risk sending it back there? Yellen is still having to tread the fine line between countering market complacency about low rates forever while simultaneously prepping traders for another eventual US hike. Not an easy job.

Economic barometer copper is already back testing July lows. We wonder whether a hawkish tone this Friday could serve to deliver a real dent to the commodity space, with a negative knock-on for the FTSE’s mining contingent. We already see the red-metal and others (aluminium, oil) putting raw material-focused names on the back foot this morning as a result of last night’s US dollar rebound. Could these trends become rather unwelcome friends?

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

US interest rates: Ignore the scaremongers, non-farm payrolls aren’t enough to derail Yellen

When Janet Yellen speaks in Philadelphia later today, everyone will have just one question on their minds – when will the US Federal Reserve next raise interest rates?

Fed members had been hinting at another rate hike over the summer, but equities are today trading higher – and the dollar is weaker – in anticipation of no change over the summer months, following last Friday’s highly disappointing non-farm payroll (jobs) numbers.

Official data on Friday showed that the US economy added 38,000 jobs last month – the fewest in more than five years – which pushed back expectations of a rate rise until later in the year.

But NFP data is a very small part of the story – and Fed chair Yellen knows it. The surprisingly low figure has been seen as an anomaly by some market commentators, contrasting with broader signs of a US economic recovery.

“Something about the NFP numbers don’t add up for me, when you compare them to more positive recent data such as regional reports from the Beige Book,” said Kully Samra, managing director of Charles Schwab in London.

“Two Fed members have already implied that the figures were an anomaly and I expect Yellen will do the same. I don’t think the NFP data would change the stance of the Fed.”

Perhaps a bigger factor in the expected no-change result at the 15 June meeting of US policymakers is the imminent risk of Brexit, ahead of Britain’s EU referendum vote on 23 June.

“I was amazed as to the degree of importance the Fed puts on the EU referendum,” said Samra. “It was mentioned in the minutes of the last meeting due to its potential impact on the global financial markets.”

Augustin Eden, research analyst at Accendo Markets, agreed. “Suffice to say that a US rate hike seems unlikely either in June or July given the iffy print and added headwinds provided by an intensifying Brexit whirlwind,” he said.

“[But] there remains an outside chance the FOMC will act despite the dire jobs number – it was after all just one number – since to do so would at least signal that US economic conditions are right and that the Federal Reserve is not hiding anything from us.”

While a rate rise now looks more likely later in the year, this should not simply be put down to the NFP number and certainly does not mean the US economy is doing badly. It’s actually faring pretty well, the Fed just needs to convince the markets, as Samra explains.

“There is a difference between where the Fed and where the market wants rates to be,” he said. “Rates have been low for so long and there is a disparity about how strong the economy is.

“It’s all about the consumer – they’re at the heartbeat of the domestic economy,” he added. “Data shows they are continuing to spend and they’re slowly borrowing more. The US is the strongest developed economy. It’s forecast to grow at well over two per cent this year.”