Stock markets have paused overnight. The initial flurry of moves across markets as traders realigned their positions for a Trump administration has run its course, earnings season is winding down and traders are waiting for new developments. The headwinds from a higher US dollar also appear to be holding stocks back.
US index futures are up 0.1% this morning for the Dow and S&P, and 0.3% for the NASDAQ as it plays catch up. The FTSE is up 0.4% while the DAX is down 0.1%. Gold continues to steadily recover up 0.3% while most major currencies are picking up slightly against USD. The retailing sector could be active again after Best Buy (NYSE:BBY) posted huge results, beating the street on same store sales and EPS by a country mile and also posting positive guidance. On the other hand, Wal-Mart (NYSE:WMT) barely beat the street on earnings while same store sales and guidance was soft heading into the big holiday season.
Crude oil continues its big rebound today with WTI up 1.1% and Brent up 1.4%. Traders continue to speculate on a production cut deal coming together in time for the November 30 OPEC meeting, less than two weeks away now. Reports that North Dakota (shale) production fell to a two year low may also be providing support. The International Energy Agency indicated US shale production could come back at a price of about $60 which is higher than the low $50s where recent rallies have been capped.
Today is the biggest day in a big week for Fed speeches. Overnight Philadelphia Fed President Harker and Cleveland Fed President Mester continued the hawkish tone pointing toward a December interest rate increase. The big question remains how many rates may follow that in 2017? At 100.00 on the US dollar index, the street is pricing in four hikes next year up from 95.00 and two hikes before the election.
Today, the doves at the Fed get a chance to fight back if they want to. Earlier this week St. Louis Fed President indicated he sees one rate hike possible now and then nothing for the next two years, but he will be a non-voter over that time frame.
NY Fed President Dudley speaks in the morning, but the most the most important comments may come from FOMC Chair Yellen and Governor Brainard. Despite their ties to the Democrats, neither is expected to resign for now at least, but they could become a source of tension between the incoming administration and the central bank.
During the campaign, Donald Trump had suggested that he would look to replace Chair Yellen at the end of her term. Her prepared remarks indicate she sees the Fed as moderately accommodative at the moment with the risk of falling behind the curve limited. Her comments appear to be supportive of a December increase in interest rates but for 2017 appear to be less aggressively hawkish than the street is forecasting currently.
Governor Brainard has been the leader of the dovish faction at the Fed, was closely linked to the Obama Administration and was reportedly a candidate for Treasury Secretary had Hillary Clinton won last week. Recall before the September meeting, she stopped speculation of a rate hike before the election dead in its tracks. Now, we’ll see if she is prepared to change her tune and get with the new program or not. We’ll also see how much influence she has lost following the election and if the street is still willing to listen to her or not.
There has been another flurry of economic data overnight highlighted by huge UK retail sales numbers, showing that the UK economy continues to outperform following the Brexit vote despite the ongoing warnings of doom from the side that lost. Today there are a number of middle tier reports from the US. It would take a huge surprise to knock the Fed off course for December, but consumer price inflation numbers could give another indication of how much pressure is on the Fed to deliver follow on hikes in 2017.