An early rise in U.S. rates would come in stark contrast to the easier monetary policies being pursued in most other major economies, including Japan, the eurozone and the United Kingdom, and increase the divergence in rates in favour of the dollar. The chance that US policy makers will raise rates by year-end remains at +57%.4.
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Brent crude LCOc1 was last down 89 cents, or 1.81 percent, at $48.37 a barrel.
Last night’s decline means that oil have lost more than 10 per cent over the past two weeks, weighed down by growing doubts that the world’s main producers would reach an agreement to cut output to bring an end to the supply glut that has roiled the market for the past two years.
US stock markets closed higher on Monday (http://www.marketwatch.com/story/worries-about-yellens-jackson-hole-speech-stop-dow-futures-in-their-tracks-2016-08-26), rebounding from Yellen-fueled losses (http://www.marketwatch.com/story/worries-about-yellens-jackson-hole-speech-stop-dow-futures-in-their-tracks-2016-08-26).
“Ultimately the August job number isn’t likely to make much difference to the Fed’s deliberations, it is the benign inflation numbers that appear to be the cause of most concern along with weak productivity which now appears to show no signs of picking up, and in fact continues to slide”, he writes. There has been mixed signals from Fed officials in this sense. Benchmark 10-year Treasury yields were little changed after posting the worst monthly performance since June 2015. This month, US 10s have backed up +12bps, the most in 12 months. However, inflation remains too low which gives an indication of how much one can expect a rate hike by the Fed.
Will the U.S. Fed decide to put up rates by 25 basis points in September or not?
On Friday after Yellen and Fischer spoke at Jackson Hole, all markets moved in the same direction – hawkishly.
As we have seen in the past, concerns about global financial stability have been just as important in the Fed’s decision making as events in the U.S. itself.
Data Monday showed that July’s personal consumption expenditures (PCE) showed no growth in annualized inflation. Digging deeper, both construction and the services sector grew at a healthy pace.
Currently, the market consensus is leaning towards the Bank of Japan (BoJ) favoring deeper negative interest rates at next months monetary policy meeting (September 20).
The stronger result supports the krone.
Elsewhere, Sweden’s “think tank” NIER updated its economic forecasts.
Despite month-end trading keeping participation to a minimum, the “mighty” dollar continues its stellar performance this morning, rising to a one-month high against its G10 peers as investors continue to assess the outlook for USA rate normalization policy this year.
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“One bad ISM result won’t shift the dial, but what it does do is introduce some doubt when markets had been buying the USA dollar ahead of this Friday’s nonfarms”, said Bipan Rai, senior foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce in Toronto. The pound is outperforming other currencies following data this morning suggesting that the United Kingdom economy was weathering the post-Brexit period well.
