Daily Market Color

Treasury Yields, Stocks Rise Following Yellen Testimony

US financial markets remained focused on commentary from Federal Reserve Chairwoman Janet Yellen today in the second session of her semiannual testimony before Congress.  In her speech to the Senate Banking Committee, Yellen again reinforced the FOMC’s stance that the recent sluggish growth in consumer prices is transitory and should rebound with the support of a stronger labor market and rising prices of imported goods.  Yellen further explained that the continued decline in labor market slack is expected to generate upward pressure on wages and in turn, boost prices.  “I think it’s premature to conclude that the underlying inflation trend is falling well short of 2%. I haven’t reached such a conclusion,” she stated.  Tomorrow morning, the Labor Department’s release of the Consumer Price Index for June will provide additional color to the inflation outlook, where a 0.1% MoM increase is expected after a 0.1% decline in May.



Another light day of economic data releases was highlighted by June’s producer-price index for final demand, which increased a seasonally adjusted 0.1% MoM.  The reading was slightly higher than expectations of no change, albeit the level exhibits continued softness in price pressures.  The core PPI also gained 0.1% in June (+0.2% expected), bringing the YoY increase to a soft 1.9%.  Other data on the day included initial jobless claims for the week ended July 8th, which showed a 3,000 decrease to a seasonally adjusted 247,000 in new claims. Additionally, the four-week moving average of claims rose by 2,250 to 245,750 while the number of continuing claims declined by 20,00 to 1.945 million for the week ended July 1st.



All three major stock indices gained 0.1%-0.2% on the day, with the DJIA tallying a new record high, boosted by rises in financial shares.  US Treasurys prices declined during the trading session as yields/swap rates increased 1-4 bps across the curve, bringing the yield on the 10-year note near 2.34%.  The US dollar edged lower against major currencies and is now sitting at its lowest level since last September.  In the energy sector, crude oil prices jumped an additional 1.3% on the day in response to a report which forecasted faster than expected growth in global demand.  WTI crude is now near its highest level of the month at $46.10/barrel.



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