- U.S. Jan headline retail sales up 0.4% vs. 0.1% forecast
- U.S. Jan core retail sales up 0.8% vs. 0.4% forecast
- U.S. Jan headline CPI rose 0.6% vs. 0.3% consensus
- U.S. Jan core CPI increased 0.3% vs. 0.2% consensus
- U.S. industrial production fell 0.3% vs. projected 0.1% uptick
- Canadian manufacturing sales rose 2.3% vs. 1.4% forecast
- FOMC head Yellen: Investment spending low, wages not rising rapidly
- Yellen: Productivity growth has been very disappointing
- FOMC voting member Harker: CPI to hit 2% goal this year or in 2018
- Harker: 2017 GDP to come in above 2%
Retreat, bulls, retreat! U.S. data came in mostly stronger than expected, but Fed head Yellen dialed back some of her hawkish remarks in her latest testimony.
Fed Chairperson Yellen’s speech – In her earlier testimony, Fed Chairperson Janet Yellen dropped several rate hike hints and highlighted most of the positive developments in the U.S. economy. In her second speech, however, she decided to tone down the hawkishness and point out which aspects still needed work.
In particular, Yellen noted that investment spending has been quite low and that wages aren’t rising as rapidly as they would like. While they have been able to create plenty of jobs, she pointed out that productivity growth has been very disappointing. On a less downbeat note, she repeated her previous comments on how the U.S. economy is moving closer to achieving the Fed’s dual goals of full employment and 2% inflation, adding that they expect to remove monetary policy accommodation by hiking short-term rates.
Remarks from other Fed officials – More Fed officials stepped up to the podium to deliver speeches in the latest New York trading session, although it’s worth noting that only Patrick Harker is a member of the voting committee. He cited that he thinks the U.S. economy has been nursed back to full health and that the economy could expand by a little over 2% this year.
Harker also mentioned that he doesn’t think that the Fed is behind the curve in terms of boosting inflation, adding that annual CPI could hit the 2% target by this year or the next. He confirmed that he’s foreseeing three interest rate hikes for the year, assuming that things stay on track. He also cautioned that his estimates don’t take fiscal policy changes into account just yet.
Meanwhile, Fed official Bullard acknowledged that the U.S. economy is doing well thanks to central bank policy and that he expects policymakers to get along with members of the Trump administration. Fed official Rosengren even mentioned that they could put the pedal to the metal by hiking rates more aggressively than three times this year.
Mostly upbeat U.S. data – Inflation and consumer spending reports printed stronger than expected results, but industrial production and capacity utilization missed their marks.
Headline CPI was up 0.6%, twice as much as the projected 0.3% increase, while the core version of the report showed a 0.3% gain versus the 0.2% consensus. Components of the report showed that the gains were driven by a sharp jump in gasoline prices, followed by higher costs of shelter, apparel, and new vehicles. On a year-over-year basis, headline CPI is up 2.5% in January while the core CPI is up 2.3%.
As for the consumer sector, headline retail sales advanced 0.4% versus the projected 0.1% uptick while the core reading increased 0.8% versus the 0.4% estimate. To top it off, the December readings were upgraded from 0.6% to 1.0% for the headline figure and from 0.2% to 0.4% for the core version of the report. Underlying data for the January report indicated that purchases of electronics and appliances accounted for most of the gains while shoppers also spent more on sporting goods, hobbies, and dining.
On the other hand, industrial production fell short of estimates by printing a 0.3% drop instead of the projected 0.1% increase. Capacity utilization slipped from 75.6% to 75.3% to indicate that a smaller share of resources is being used up by manufacturers, mines, and utilities but analysts pointed out that this was simply due to weaker demand for heating on warmer weather.
Major Market Movers:
USD – The Greenback was forced to return some of its recent wins as Yellen sounded a tad more cautious in her second testimony.
EUR/USD climbed from a low of 1.0515 to a high of 1.0610, USD/JPY came a few notches shy of the 115.00 mark before turning down to a low of 113.86, GBP/USD rallied from 1.2406 to 1.2481, and USD/CHF is down to the 1.0050 minor psychological mark.
- 12:00 am GMT: Australian MI inflation expectations (4.3% previous)
- 12:15 am GMT: FOMC member Dudley’s testimony
- 12:30 am GMT: Australian jobs report (Check out Forex Gump’s guide here!)
Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.
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