Daily Market Color

Investors Brace for Yellen’s Speech Ahead of Holiday Weekend

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US stocks are struggling for direction while Treasuries are rallying across the curve after a variety of new data releases and ahead of tomorrow’s speech from Fed Chair Yellen.  Some market pundits have interpreted Yellen’s recent silence as support of her colleagues’ talk of an impending rate hike.  She will receive the prestigious Radcliffe award at Harvard, and will also be interviewed by renowned Harvard professor Greg Mankiw.  Markets expectations have shifted in recent weeks after hawkish rhetoric from several regional Fed presidents, but it’s important to keep in mind that many of the recent Fed talking heads are non-voters in 2016, and that Yellen’s opinion will certainly carry a disproportionate amount of weight in the actual voting process.
Today’s new US data releases largely beat expectations.  The number of Americans filing claims for unemployment benefits declined for the second straight week, moving back to near cycle lows after a surprise spike at the beginning of the month.  A 2,750 increase in the four-week moving average of claims suggests the trend is less favorable than we saw earlier this year, but economists have blamed a range of transitory factors including the different timing of school spring breaks, an ongoing strike by Verizon workers, and possible manufacturing disruptions resulting from the recent earthquakes in Japan.  Claims extended their streak below 300,000 to 64 consecutive weeks, the longest stretch since 1973.  Separate data from the Commerce Department showed durable goods orders increased 3.4% in April, the largest jump since January, easily beating the 0.5% gain economists were predicting.  A large portion of the gain can be attributed to a surge in commercial aircraft orders, which tend to be volatile from month to month.  A look past the headline number painted a less rosy picture, as a proxy for business investment spending unexpectedly declined for a third straight month.  A third report showed existing home sales surged to a 10-year high, confirming the previously reported strong new home sales data.

Aside from the data, Fed Governor Powell (moderate, permanent voter) spoke this afternoon, and the US Treasury held a $28 billion 7-year note auction.  All three major US stock indexes are down less than 0.25%, while Treasury yields and swap rates are 2-4 bps lower across all major maturities.  Please note the early market close tomorrow (2pm EST) and full market close on Monday Memorial Day.



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