Yellen in the spotlight along with US CPI – 17 Nov 2016

Yellen in the spotlight along with US CPI – 17 Nov 2016


Yellen in the spotlight along with US CPI

Traders should focus on Fed chair Yellen statement later today. Yellen can give important signals about a possible hike next month, market reaction over US elections results, inflation expectations in combination with the recent rise of USD and bond yields, political independence of fed and the limits of fiscal policy.

We continue to monitor the political crisis in Europe and the upcoming referendum in Italy which can drive the Italian PM to resign. The Italian 10 yr. BTP yield has increased 75 basis points during the last week. The biggest failure will not be only M Renzi but also M Draghi who is running out of options.

If today’s US CPI number fail to meet market expectations it is very likely to see greenback lose value, as markets currently overestimated inflation expectations. In order to have a clear picture about Trump’s intentions of how he will govern we need at least 3 months from now. Markets have rushed to make assumptions about the policy that the new president of the US will follow and this can trigger wrong signals.

Key points:
• The USDJPY rallied to five month highs
• USD rises to the highest level since 2003
• Bullard it will be a surprise if FED does not hike
• Unemployment in UK falls to 11 years low
• Italiana referéndum poll ‘’No’’ 34 – ‘’Yes’’ 29
• Fed’s Kashkari: Fed should be willing to tolerate 2.5% inflation
• Fed’s Mester. It is appropriate now to raise rates
• 94% probability the Fed raises rates in a few weeks based on fed fund futures
• Euro dropped to a fresh 1 year low versus the U.S. dollar.

Daily Economic calendar:
Country Event Importance Previous Expectations Follow Times
UK Retail Sales m/m Medium 0.0 0.5 GBP 12:30
Europe Final CPI y/y High 0.4 0.4 EUR 13:00
Europe Final Core CPI y/y Medium 0.8 0.8 EUR 13:00
Europe ECB Monetary Policy Meeting Accounts N/A N/A EUR 15:30
USA Building Permits Low 1.23M 1.29M USD 16:30
USA CPI High 0.3 0.4 USD 16:30
USA Core CPI 0.1 0.2 USD 16:30
USA Philly Fed Manufacturing Index Medium 9.7 8.1 USD 16:30
USA FOMC Member Dudley Speaks Medium N/A N/A USD 4:50
USA Fed Chair Yellen Testifies High N/A N/A All indices 6:00

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