Daily Market Color

Global Markets Remain Focused on U.S. Rate Hike

Markets opened this week influenced by hawkish comments delivered from Fed Vice President Stanley Fischer over the weekend.  Speaking at a conference in Colorado on Sunday, Fischer advised that the economy is nearing the Fed’s targets of full employment and two percent inflation, with expectations of growth in the ensuing quarters.  His comments are the latest in a series of speeches from Fed members that suggest a 2016 rate hike is still very much in the Fed’s plans.  Further direction should be provided this week following the scheduled release of data on housing, manufacturing, and weekly jobs, and culminating with Yellen’s speech at the annual central bankers’ meeting in Jackson Hole, Wyoming on Friday.
With the prospect of a ’16 rate hike gaining more credibility, the US dollar strengthened today against major currencies partially reversing losses over the past two weeks.  Crude oil prices also dropped over 3% from Friday.  Contributing to the decline in oil, the second biggest OPEC producer, Iraq, announced that it will boost exports by 5% this week along with US drillers adding rigs for an eighth consecutive week.  Equity markets similarly fell at the open, but have since rebounded to trade near flat as analysts price in a 50/50 chance of a Fed rate hike by year end.  In fixed income, the Treasury curve flattened with the yield on the 30-year bond dropping over 5 basis points to 2.23%, with yields on the short end down just 2-3 bps.   

Global markets traded mostly down on the day as European and Asian markets posted losses resulting from the drop in oil and US rate uncertainty.  Japanese equity markets were the lone bright spot, with the Nikkei 225 up roughly +0.30% following the drop in value of the Yen and amidst news of another potential rate cut from the Bank of Japan.  Elsewhere, the Reserve Bank of India announced its next governor, Urjit Patel, who was the former deputy governor in charge of monetary policy.
All three major U.S. indexes are currently trading near flat, while Brent and WTI crude oil prices are down roughly $1.50 per barrel.  Treasury yield and swap curves are flattening, with rates down 2-6 basis points across the curve.

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