The rally in stock markets continued overnight with overseas markets posting significant gains including 2.1% for the Hang Seng, and 1.6% for both the FTSE and the Dax. The rally has followed though into US trading this morning with index futures for the Dow and S&P trading up about 0.6%.
Ending a few days of sluggishness, stocks soared following yesterday’s speech from FOMC Chair Yellen who set the record straight on where the US central bank stands on interest rates following recent contention between dueling factions at the Fed.
She also make comments related to recent rises in core PCE inflation being normal fluctuations rather than the start of a trend and also that she thinks the current neutral rate for Fed Funds (neither expansionary nor contractionary) is currently near zero but can rise if inflation picks up. These comments can also be seen as dovish, indicating that she doesn’t think the Fed is falling behind the inflation curve and therefore isn’t in a hurry to raise interest rates in April.
In addition to igniting the currency rally in stocks, her comments sent USD down sharply. A number of currencies have rallied initially and paused at higher levels with some of the biggest beneficiaries including gold, NZD and RUB. GBP, EUR and CAD started out strong yesterday but have been backsliding this morning.
Crude oil has been on the rebound overnight clawing back some of yesterday’s losses in tandem with other markets. API oil inventories improved in that they didn’t go up as much as last week, so we could see more activity around today’s DOE inventory reports.
This morning brings ADP payrolls with the street expecting an increase of about 200K jobs again. It would take a really big surprise at this point say 300K+ to change the dovish Fed expectations that were reinforced by yesterday’s speech from Chair Yellen.
Speeches from Chicago Fed President Evans Wednesday and NY Fed President Dudley Thursday may reinforce the dovish case with the next comments from the hawkish faction not scheduled until Cleveland Fed President Mester speaks on Friday.
Lululemon (NASDAQ:LULU) shares may attract attention today after the yoga and athletic clothing company reported earnings per share of $0.85 for its latest quarter above the $0.80 the street had been expecting with same store sales rising by 5% and total sales or $704M. Guidance for continued sales growth in the coming year may help to support the current recovery trend in the shares.
Strong sales and earnings at Dollarama (TO:DOL) along with a dividend increase and management change may attract trading interest today. This result can also be seen as a sign of the times as discount stores are countercyclical in some ways. This suggests that some regions of the country (particularly those dependent on oil and gas exploration and production) have been hit really hard and are in recession while Canada continues to work at rebalancing its economy.