- Yellen provides no fresh hints on rate-hike timing
- U.S. CPI expected to move higher due to energy prices but core CPI is expected to ease slightly
- U.S. retail sales expected to show decent +0.4% increase ex-autos
- U.S. industrial production ex-autos expected to be stable at +0.2%
- Weekly EIA report
Yellen provides no fresh hints on rate-hike timing — Fed Chair Yellen today will deliver her semi-annual testimony on monetary policy to the House Finance Services Subcommittee, submitting the same prepared statement from her appearance on Tuesday before the Senate Banking Committee but answering different questions.
As expected, Ms. Yellen in her testimony on Tuesday before the Senate Banking Committee was noncommittal about the timing of the Fed’s next rate hike. She tried to thread the needle by saying that “monetary is not on a preset course” but that it would be “unwise” to raise rates too slowly. By saying that the Fed is not on a “preset course,” Ms. Yellen was presumably trying to knock down any notion that the Fed is on a preset schedule of raising interest rates every second or third FOMC meeting.
Ms. Yellen added, that “Considerable uncertainty attends the economic outlook” and that there will be “possible changes to US fiscal and other policies.” However, she also suggested that the Fed would go ahead with rate hikes in the future if required by the Fed’s labor-inflation goals even if the Fed did not know exactly what would transpire on the fiscal front.
The federal funds futures curve turned a bit more hawkish after Ms. Yellen’s testimony on Tuesday. The federal funds futures contracts (on a yield basis) rose by +3 bp to 1.14% for the Dec 2017 contract and by +5 bp to 1.61% for the Dec 2018 contract, indicating slightly increased chances for Fed tightening over the next two years. The market is discounting a 34% chance of a rate hike at the next FOMC meeting on March 14-15, an 86% chance of a rate hike by the May 2-3 meeting, and a 100% chance of a rate hike by June.
U.S. CPI expected to move higher due to energy prices but core CPI is expected to ease slightly — The market consensus is for today’s Jan CPI to jump to +2.4% y/y from December’s +2.1% but for the Jan core CPI to ease slightly to +2.1% y/y from December’s +2.2%. The bond market may be a little nervous about today’s CPI report given yesterday’s news that the Jan PPI jumped by +0.6% m/m, the largest monthly increase in more than 4 years. However, that jump was largely due to higher fuel prices and the core PPI on a year-on-year basis actually fell to +1.2% y/y from December’s +1.6%.
Today’s expected CPI headline report of +2.4% and core report of +2.1% would be slightly above the Fed’s +2.0% inflation target. However, the Fed’s preferred inflation measure is the PCE deflator, which was tamer at +1.6% y/y headline and +1.7% y/y core in December, both below the Fed’s target.
The U.S. inflation rate this year is likely to creep higher as the economy gains a little momentum, as wages increase, and as oil and commodity prices potentially see strength from increased global demand. However, there is no urgency on the inflation front at present that demands an accelerated Fed rate hike schedule.
U.S. retail sales expected to show decent +0.4% increase ex-autos — The market is expecting today’s Jan retail sales report to show an increase of +0.1%, falling back from December’s strong +0.6% largely because of weaker auto sales. Excluding auto sales, today’s Jan retail sales report is expected to rise by +0.4%, stronger than December’s increase of +0.2%.
U.S. consumer confidence showed a sharp improvement in Nov-Dec after the election, but then topped out in Jan/Feb as consumers took more of a show-me attitude to the incoming Trump administration. While business confidence has improved significantly in the past several months, the U.S. economy still needs the consumer as the main locomotive driving the economy.
U.S. industrial production ex-autos expected to be stable at +0.2% — The market is expecting today’s Jan industrial production report to be unchanged after December’s sharp increase of +0.8%. Isolating the manufacturing sector, Jan manufacturing production is expected to show a modest increase of +0.2%, matching December’s +0.2% increase.
The U.S. manufacturing sector should soon start to show some signs of life with the post-election improvement in orders and business confidence. The ISM manufacturing index during Nov-Jan rose by a total of +4.0 points to a 2-1/4 year high of 56.0. The ISM manufacturing new orders sub-index during Nov-Jan rose by +6.3 points to post a new 2-1/4 year high of 60.4. That improved level of confidence and increased level of new orders should soon turn into higher production and shipments.
Weekly EIA report — The market consensus for today’s weekly EIA report is for a +3.5 million bbl rise in crude oil inventories, a +500,00 bbl rise in gasoline inventories, a -1.0 million bbl decline in distillate inventories, and a -0.2 point decline in the refinery utilization rate to 87.5%. Crude oil remains in a massive glut at +38.6% above the 5-year seasonal average. Meanwhile, product inventories remain ample with gasoline inventories +7.1% above the 5-year seasonal average, while distillate inventories are +24.8% above average. U.S. oil production in last week’s EIA report rose by +0.7% w/w to post a new 10-month high of 8.978 million bbls. That is up by +550,000 bpd (+6.5%) from the 2-3/4 year low of 8.428 bpd posted in July 2016. Since May 2016, the number of active U.S. oil wells has soared by 275 rigs (+87%) to a 1-1/3 year high of 591 rigs.
Yellen provides no fresh hints on rate-hike timing — Fed Chair Yellen today will deliver her semi-annual testimony on monetary policy to the House Finance Services Subcommittee, submitting the same prepared statement from her appearance on Tuesday before the Senate Banking Committee but answering different questions.
As expected, Ms. Yellen in her testimony on Tuesday before the Senate Banking Committee was noncommittal about the timing of the Fed’s next rate hike. She tried to thread the needle by saying that “monetary is not on a preset course” but that it would be “unwise” to raise rates too slowly. By saying that the Fed is not on a “preset course,” Ms. Yellen was presumably trying to knock down any notion that the Fed is on a preset schedule of raising interest rates every second or third FOMC meeting.
Ms. Yellen added, that “Considerable uncertainty attends the economic outlook” and that there will be “possible changes to US fiscal and other policies.” However, she also suggested that the Fed would go ahead with rate hikes in the future if required by the Fed’s labor-inflation goals even if the Fed did not know exactly what would transpire on the fiscal front.
The federal funds futures curve turned a bit more hawkish after Ms. Yellen’s testimony on Tuesday. The federal funds futures contracts (on a yield basis) rose by +3 bp to 1.14% for the Dec 2017 contract and by +5 bp to 1.61% for the Dec 2018 contract, indicating slightly increased chances for Fed tightening over the next two years. The market is discounting a 34% chance of a rate hike at the next FOMC meeting on March 14-15, an 86% chance of a rate hike by the May 2-3 meeting, and a 100% chance of a rate hike by June.
U.S. CPI expected to move higher due to energy prices but core CPI is expected to ease slightly — The market consensus is for today’s Jan CPI to jump to +2.4% y/y from December’s +2.1% but for the Jan core CPI to ease slightly to +2.1% y/y from December’s +2.2%. The bond market may be a little nervous about today’s CPI report given yesterday’s news that the Jan PPI jumped by +0.6% m/m, the largest monthly increase in more than 4 years. However, that jump was largely due to higher fuel prices and the core PPI on a year-on-year basis actually fell to +1.2% y/y from December’s +1.6%.
Today’s expected CPI headline report of +2.4% and core report of +2.1% would be slightly above the Fed’s +2.0% inflation target. However, the Fed’s preferred inflation measure is the PCE deflator, which was tamer at +1.6% y/y headline and +1.7% y/y core in December, both below the Fed’s target.
The U.S. inflation rate this year is likely to creep higher as the economy gains a little momentum, as wages increase, and as oil and commodity prices potentially see strength from increased global demand. However, there is no urgency on the inflation front at present that demands an accelerated Fed rate hike schedule.
U.S. retail sales expected to show decent +0.4% increase ex-autos — The market is expecting today’s Jan retail sales report to show an increase of +0.1%, falling back from December’s strong +0.6% largely because of weaker auto sales. Excluding auto sales, today’s Jan retail sales report is expected to rise by +0.4%, stronger than December’s increase of +0.2%.
U.S. consumer confidence showed a sharp improvement in Nov-Dec after the election, but then topped out in Jan/Feb as consumers took more of a show-me attitude to the incoming Trump administration. While business confidence has improved significantly in the past several months, the U.S. economy still needs the consumer as the main locomotive driving the economy.
U.S. industrial production ex-autos expected to be stable at +0.2% — The market is expecting today’s Jan industrial production report to be unchanged after December’s sharp increase of +0.8%. Isolating the manufacturing sector, Jan manufacturing production is expected to show a modest increase of +0.2%, matching December’s +0.2% increase.
The U.S. manufacturing sector should soon start to show some signs of life with the post-election improvement in orders and business confidence. The ISM manufacturing index during Nov-Jan rose by a total of +4.0 points to a 2-1/4 year high of 56.0. The ISM manufacturing new orders sub-index during Nov-Jan rose by +6.3 points to post a new 2-1/4 year high of 60.4. That improved level of confidence and increased level of new orders should soon turn into higher production and shipments.
Weekly EIA report — The market consensus for today’s weekly EIA report is for a +3.5 million bbl rise in crude oil inventories, a +500,00 bbl rise in gasoline inventories, a -1.0 million bbl decline in distillate inventories, and a -0.2 point decline in the refinery utilization rate to 87.5%. Crude oil remains in a massive glut at +38.6% above the 5-year seasonal average. Meanwhile, product inventories remain ample with gasoline inventories +7.1% above the 5-year seasonal average, while distillate inventories are +24.8% above average. U.S. oil production in last week’s EIA report rose by +0.7% w/w to post a new 10-month high of 8.978 million bbls. That is up by +550,000 bpd (+6.5%) from the 2-3/4 year low of 8.428 bpd posted in July 2016. Since May 2016, the number of active U.S. oil wells has soared by 275 rigs (+87%) to a 1-1/3 year high of 591 rigs.
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