Markets Today: Psycho Killer

If Janet Yellen has been in the recording studio at the time, David Byrne might well have been directing his lyrics in her direction.

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“You’re talking a lot, but you’re not saying anything.

When I have nothing to say, my lips are sealed

Say something once, why say it again?

Psycho Killer, Qu’est-ce que c’est.”

So sang Talking Head in 1974. If Janet Yellen has been in the recording studio at the time, David Byrne might well have been directing his lyrics in her direction. To be fair, the Fed chair was fronting up to the House Financial Services Committee in Washington so had no choice but to wax forth. But on policy, she did nothing but reiterate that a majority of the FOMC anticipated raising rates before the end of year, a line lifted straight out of last week’s post-meeting missives. Yellen did say that changing the (2%) inflation target is “not something the Fed is actively considering, not at this time” plus we had the usual platitudes about there being no fixed timetable for rate increases.  Markets didn’t move.

The bigger – and market moving – news overnight was that OPEC ministers meeting informally in Algiers have reportedly come to some sort of agreement, expected to be cemented in November, for overall OPEC production to be capped at 32.25 million barrels per day. That compares with current production estimates of between 32.5 and 33 million barrels. If Iran is to proceed to ramp up its production to near 4 million barrels from around 3.4 million currently, that would presumably imply outright cuts elsewhere. Seeing is believing on these things of course, but the oil market has lost no time lifting the price of crude by over 5% (Brent +$2.65 to $48.64 and WTI by $2.33 to $47).

The S&P500 has just closed +0.53% led by 4%+ gains for the energy sector. U.S. bond yield are fractionally higher.  In currencies, the oil news has unsurprisingly seen the CAD and NOK leap to the top of the FX leader board, NOK up 1% and CAD 0.8%. NZD in contrast is at the bottom, continuing to weaken on no new news other than strengthened conviction in November RBNZ easing.

Data of any interest last night was confine to US durable goods orders. The 0.0% headline was better than the -1.5% consensus but July was revised down to 3.6% from 4.4%. Overall the data is seen imparting slight downside risk to Q3 GDP estimates (the Atlanta Fed has shaved its GDPNow estimate down to 2.8% from 2.9%).  In core terms though (stripping out the extreme volatility in the aircraft and defence sectors) core capex orders rose by 0.6% well above the -0.1% consensus, though again Jul was revised down. This offers some hope business investment is picking up.

Coming Up

There’s plenty of stuff on the economic and events calendar today, but nothing that inspires in terms of potential to cause significant market volatility.

There’s lots of Fed speakers, but nothing we’ve heard from anyone since the 21 September FOMC decision has had any discernible market impact (not even Fed Vice-Chair Stanley Fischer’s comment on Tuesday night that he wants to see wages growth up at 3% (from 2.5%) to be consistent with the Fed’s inflation objective. Janet Yellen is speaking again, but it’s via video link to a minority banking conference so unlikely to touch on short term Fed policy matters. Philadelphia Fed President Patrick Harker, Atlanta Fed President Dennis Lockhart and Governor Jerome Powell (who voted with the ‘no change’ majority this month) are all scheduled to speak.

Bank of Japan Governor Kuroda speaks around 16:30 AEST, but everything he’s said since last week’s BoJ meeting has gone largely ignored by the FX market with USD/JPY for the most part trapped in a narrow  ¥100-¥101 range. August retail sales data is due but won’t move the currency.

We get the first indications of Eurozone inflation in September with Germany’s preliminary estimate (expected to rise to 0.6% from 0.4% – or from 0.3% to 0.5% in EU harmonized terms). The ECB next meets on 20 October.

The US has August trade numbers, the final estimate of Q2 GDP (expected to be revised from 1.1% to 1.3%) and weekly jobless claims. There’ll doubtless be more interest in any fresh Presidential election opinion polls.

Overnight

On global stock markets, the S&P 500 was +0.61%. Bond markets saw US 10-years +1.55bp to 1.57%. In commodities, Brent crude oil +5.92% to $48.69, gold-0.4% to $1,321, iron ore -0.3% to $56.48. AUD is at 0.7689 and the range since 5pm yesterday is 0.7646 to 0.7693.

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