Wall Street Surging Before Yellen Speech

Wall Street Surging Before Yellen Speech

It’s been a brisk morning in terms of economic news, most of which has been positive, helping the stock market to advance to record levels.  

Wall Street Surging Before Yellen Speech
Wall Street Surging Before Yellen Speech

By early afternoon in New York, the Dow Jones Industrial Average had pushed above the key 17,000 mark, gaining 0.43% or 74 points to stand at 17,052, under 100 points from its all-time high, while the broader, more representative S&P 500 rose 0.32% to 1992.8 and setting a fresh record of 1993.53 in today’s session.

Things had got off to a promising start even before the US stock market had opened, with the release of jobless claims data. Initial claims for unemployment insurance receded to a slightly-better-than-expected 298,000 last week, down from 312,000 in the week prior, which should bolster expectations for the monthly August employment report (the week in question is the sample week used by the Bureau of Labor Statistics in its surveys from which the Employment Situation report is produced).

The four-week moving average actually drifted higher, now standing at 300,750 compared to 296,000 in the week prior, but this is several thousand better than the average was looking during the July sample week. This comes at an interesting time, a day ahead of Fed chief Janet Yellen’s speech on the labor markets in Jackson Hole, Wyoming and a day after the release of the minutes from the last FOMC meeting, which struck a slightly more hawkish tone than had been expected.

The minutes revealed that ‘many’committee members felt that if labor market and inflation conditions converge more quickly than expected toward the Fed’s goals ‘it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated.’ Moreover, some members viewed the ‘actual and expected progress toward the Committee's goals as sufficient to call for a relatively prompt move toward reducing policy accommodation’.

Today’s jobless data will provide even more ammunition to these hawks, and increase the pressure on Ms Yellen to make the Fed’s forward guidance even more explicit in terms of when policy will begin to be less accommodative.

The price movement of stocks today suggests that investors are so far showing few concerns over tightening of monetary policy, but that could change should Ms Yellen adopt a less dovish stance than previously. Forex traders appear to share a similar sentiment, with the euro strengthening 0.15% against the US dollar, while USD/CAD fell 0.24% and USD/CHF weakened 0.21%.

Employment strength was also a feature in the preliminary reading of Markit’s manufacturing Purchasing Managers’ Index (PMI). The headline level advanced to 58.0 from July’s flash reading of 56.3 and final reading of 55.8, with employment leading gains in the index’s components. Manufacturing has been a notable area of strength for the economy for a few months now, and the Philly Fed’s general business conditions index, which surveys manufacturing firms in its district, also showed improvement at the headline level this month, climbing to 28.0 from July’s 23.9. There are some causes for concern, looking beneath the headline level though, with severe deceleration in the new orders component and a narrowing in the number of unfilled orders. These factors suggest it will be a challenge to maintain momentum in the Philly Fed region.

Data for the housing market has been encouraging all week, and this trend was capped off with the release of better than expected existing home sales for July. Sales grew to an annualized pace of 5.15 million from 5.03 million in June. New home sales data is released on Monday.

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