While you were sleeping: Yellen lifts markets

Thursday 13th July 2017

Wall Street and US Treasuries rallied after US Federal Reserve Chair Janet Yellen flagged that lower-than-expected inflation will likely keep the pace of interest rate increases in check.

“The federal funds rate would not have to rise all that much further to get to a neutral policy stance,” Yellen said in her semiannual testimony to Congress, speaking before the House Financial Services Committee on Wednesday.

In 3.26pm trading in New York, the Dow Jones Industrial Average climbed 0.7 percent, while the Nasdaq Composite Index rallied 1.1 percent. In 3.11pm trading, the Standard & Poor’s 500 Index advanced 0.8 percent.

US Treasuries advanced, sending yields on the 10-year note four basis points lower to 2.32 percent.

“Considerable uncertainty always attends the economic outlook,” according to Yellen. “There is, for example, uncertainty about when—and how much—inflation will respond to tightening resource utilisation.”

"Inflation continues to run below our 2 percent objective and has declined recently,” Yellen noted.

Yellen will speak again before the Senate Banking Committee on Thursday.

"It was a little bit more dovish than most had thought," Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago, told Reuters

"She said rates won't have to rise much further to get to neutral, I thought that was key,” Scalone noted. “She said inflation response to economy is a key uncertainty, alluding to the inflation again, part of the dovishness."

The Dow touched a record high, led by gains in shares of DuPont and those of Microsoft, recently up 2.7 percent and 1.5 percent respectively. Shares of JPMorgan Chase and those of Travelers posted the only percentage declines in the Dow, recently 0.3 percent and 0.03 percent weaker respectively.

“We thought that it was pretty balanced and a pretty steady continuation of the themes” that Yellen had laid out after the Fed’s meeting last month, Michael Feroli, chief US economist at JPMorgan Chase in New York, told Bloomberg. “It was pretty straight down the middle.”

Meanwhile, shares of American Airlines rallied, up 4 percent as of 3.38pm in New York, after the company upgraded its forecast for its second-quarter total revenue per available seat mile (TRASM).

“The improvement in TRASM from prior guidance is driven primarily by higher passenger yields, with particular strength in the domestic, Central/South American, and Caribbean regions,” the airline said in a statement.

In Europe, the Stoxx 600 Index ended the day with a 1.5 percent increase from the previous close. The UK’s FTSE 100 Index rose 1.1 percent, while Germany’s DAX Index added 1.5 percent, and France’s CAC40 Index gained 1.6 percent.

(BusinessDesk)

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