Yellen Speech Today a Precursor to June 6

Yellen Speech Today a Precursor to June 6

28 五月 2016, 08:33
Jiming Huang

Stocks are indicated to start today's session in the green, which would follow the modestly lower close on Thursday and stronger gains earlier in the week. There is a lot of attention on today's Janet Yellen speech at Harvard where many would be looking for clues whether the Fed was on track for a rate hike this summer.

I am not expecting anything substantive coming from today's Yellen speech, but the one  on June 6 th will most likely be a more appropriate time for a policy speech. By then, we will have seen the jobs and ISM readings and will have a clearer sense of improvement in the economy. A number of Fed officials have been publicly talking up the prospect of a summer rate hike in recent days, the odds of which have been steadily going up lately since the release of the last Fed minutes.

On the data front, the second look at Q1 GDP came in lower than expected, even though the originally reported +0.5% growth got bumped up to +0.8% (the expectation was for the growth rate to come in at +0.9%). The gains came in from the less-desirable components of the GDP equation: more contribution from inventories and less drag from net exports. 

Consumer spending came in unrevised at +1.9% relative to expectations of +2.2%. Spending hopes had gone up following the strong March Retail Sales report. The investments picture became even weaker, with non-residential fixed investment declining -6.2% vs. -5.9% the first time around, while housing's contribution improved modestly.

All in all, this was a weaker revision to an already weak GDP report. But this has limited practical implication. The relevant GDP number now is the market's evolving expectation for the current period, which currently stands at a relatively strong +2.9%, per the Atlanta Fed's GDPNow tracker. Next week's line-up of top-tier economic readings, particularly Wednesday's factory sector ISM survey and Friday's jobs report, will further cement the market's economic expectations and Fed view.

May 27, 2016, 10:26:00 AM EDT By Sheraz Mian