Economic events of the coming week

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Monday: The Final estimate of May’s Industrial Production data will be released in Japan, with the last print indicating a moderate 0.8% annual increase. Data will also be provided on the Eurozone’s Industrial Production, which analysts expect will see a 1.2% monthly decrease. Tuesday: Consumer Price Index data will be released in Italy and the U.K. In Germany, the ZEW Survey will see light, with analysts expecting some moderation in both the Current Situation component, as well as ‘Expectations’. In the U.S., the Empire State Manufacturing Survey will be released, as well as June’s Advance Retail Sales. Additionally, Fed Governor Yellen will give a Semi-Annual Testimony to Senate. Wednesday: China will release data on its rapidly growing Retail Sales, as well as less so Industrial Production and Gross Domestic Product. The U.K. will see the release of some labor market statistics, among these are Jobless Claims and the International Labor Organization’s Unemployment rate. In the U.S. the weekly MBA Mortgage Applications will see light, as well as the Producer Price Index and June’s Industrial Production. Thursday: The Final estimate of June’s Consumer Price Index for the Eurozone will be released. In the U.S., the weekly Housing Starts print will see light, recently being a hair over one million monthly. Also due is the weekly Initial Jobless Claims, still above but close to 300K. Friday: The University of Michigan’s Consumer Confidence Index and the Conference Board’s Leading Index will be released. Join Anyoption and take advantage of the volatility of the markets ..Start Trading TODAY!

Maybe it is the economy that is unclear

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The press conference's Q&A enabled reporters to tackle Yellen on the matter. When confronted with the fact that market pricing for interest rate is lower than the consensus of Fed members, Yellen said that each Fed member has a "considerable band of uncertainty" around his forecast. When questioned by what extent is the monetary policy driven by financial stability, Yellen said that she does not see stability as an important factor in shaping monetary policy at the moment. Reporters kept pushing the inflated asset bubble premise, as they suggested that the S&P 500 is at a record high. Yellen replied that she “does not see valuations outside of historical norms for equity prices broadly". Ultimately, Yellen was asked if there would be a considerable period between the end of the bond purchases and the first hike of the federal funds rate and specifically, whether March's six-month assessment is still good. To this, Yellen concluded with an undeceive response that there is "no mechanical formula whatsoever for what a considerable time means".

Evidently, the perception that everything is relative seems to be very valid in financial markets nowadays. It is easy to see why an additional 10 billion dollars tapering can be a step backwards. 

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Stocks gain on Fed’s lack of clarity

Last Thursday’s Federal Open Market Committee (FOMC) rate decision seemed to be good on U.S. equity markets and asset markets in General. The NASDAQ Composite Index added 0.7% to its value following the announcement and the Dow Jones added 0.6%. This is somewhat surprising given the announcement of an expected, yet non-trivial, 10 billion dollars reduction of the Fed’s asset purchase program. Further digging into press release accompanying the decision, one would note that the Fed is quite content with growth in economic activity, saying it had rebounded in recent months, and that business fixed investment, which is considered pro-cyclical, has resumed its advance. So one has to wonder, if the economic data is suggesting a more hawkish monetary policy, why are equity markets gaining? QE3's tapering had been quite consistent since it started in December of 2013. In that sense, last week's 10 billion addition was not a surprise. That leaves us with the future path of the Federal funds rate. Regarding this, there is the fact that the announcement saw the Fed’s longer term rate projection sliced from 4% to 3.75%. Regarding rate expectations, last week's announcement had very dull content. Investors could have been concerned of Yellen following BoE Governor Carney’s path, by suggesting that a rate hike could occur sooner than markets currently price. Additionally, Yellen's comment from March, that the gap between the end of QE3 and the Fed raising rates should amount to about six months, was still her most recent guidance. Regarding financial stability, the recent month's rally in equity markets, amid historically high valuations, is another reason to question the current monetary policy. Join Anyoption and take advantage of the volatility of the markets ..Start Trading TODAY!