Daily Market Color

Trading Activity Remains Muted Ahead of Yellen’s Jackson Hole Speech

US stocks and Treasurys are both trading close to unchanged as traders remain on the sidelines ahead of Fed Chair Yellen’s Jackson Hole speech tomorrow.  This year’s conference is titled “Designing Resilient Monetary Policy Frameworks for the Future”, and market pundits expect Yellen’s much-anticipated speech to lay the groundwork for future Fed direction.  In the meantime, several Fed officials have already used the forum to share their own views.  Kansas City Fed President George, a 2016 voter and widely considered hawk, said “When I look at where we are with the job market, when I look at inflation and our forecast for that, I think it’s time to move”.  George cast the lone dissenting vote at the July FOMC meeting.  Dallas Fed President Kaplan said “the case is strengthening” for a rate hike, but declined to specify when and by how much, instead reiterating the need to continue to monitor the incoming data.  Market odds makers now put the chance of a September move up to a 30% chance, and over a 50% chance of at least one Fed hike by year end.
In terms of new data releases today, a report from the Commerce Department showed durable goods orders surged last month off the back of a large increase in demand for commercial aircrafts, signaling the soft manufacturing sector may finally be stabilizing.  Orders for core capital goods, a measure of business investment, also rebounded, posting the largest gain since January.  The 4.4% headline gain was the largest monthly increase since October.  A separate report showed weekly jobless claims fell for the third straight week to 261,000.  They have remained below 300,000, the threshold commonly associated with a healthy labor market, for 77 straight weeks the longest stretch since the early 1970’s. 

All three major US stock indexes are trading flat to yesterday’s close, while Treasury yields and swap rates are 1-3 bps higher across all major maturities.  Both WTI and Brent crude are up between 0.50% and 1% off the back of speculation that the dollar will weaken following Yellen’s speech.

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