Markets were abuzz with the news that Fed Chair Janet Yellen, in her semiannual hearing in front of Congress, was clear that so long as the labor market continues to show signs of improvement, the Fed remains on track to increase the federal funds rate in 2015, the first time it would be lifted in nearly a decade. In fact, she revealed that FOMC forecasts actually call for two 25 bp (0.25%) increases to the rate this year. Chair Yellen will again be speaking before the Senate tomorrow after addressing the House Financial Services Committee today. U.S. indices showed little change at this morning’s open, though the Nasdaq rose about 0.3%, while the metals began trading in the red. Gold and platinum were each about 0.7% lower, while silver led the way, off by nearly 2%.
Yesterday in the Markets
The precious metals each pulled back modestly into the red on Tuesday while U.S. stocks rose by about 0.5%. Crude oil fell on the Iran nuclear deal, and European shares turned positive after beginning the day in the red. Markets in Asia were mixed, as Shanghai lost another 1% and the Nikkei advanced 1.4%. The euro traded at about $1.10, and 10-year Treasury yields sat at 2.40%.
Factors Affecting Gold Today
Yellen’s insistence on the timing of a rate hike—even with her line-towing data targets for unemployment and inflation somehow perpetually in doubt—is nothing if not rhetorical. Although it is conceivable that the Fed could increase its benchmark funds rate in September, and again in December, the pace of normalization is undoubtedly going to remain very progressive thereafter. Moreover, just about anything unexpected that comes up (as it invariably does when it comes to economics) can be held up as an excuse not to raise rates too soon. The Fed can probably prolong things in this manner nearly indefinitely, barring a fantastic, unforeseen lift-off for the U.S. economy that renders a rate hike the most prudent course of action.
Despite some risk-off sentiment regarding the Chinese stock market’s recent meltdown, the situation does not look to be improving. Various stimulus measures implemented by the Chinese government have begun to take effect, boosting quarterly GDP numbers, but this didn’t help investor sentiment on the mainland—the Shanghai Composite fell by another 3% today. Some have suggested that even as confidence in the Chinese markets modestly improves with the announcement of 7% growth in the second quarter, consolidation and profit-taking will keep the country’s stock indices from rallying anew.
Meantime, Europe remained optimistic about how it will resolve the Greek debt situation, as stock indices on the continent again surged into positive territory across the board this morning. The Greek parliament will vote on whether or not to enact austerity measures that are prerequisites to unlocking more bailout aid to the ailing Greek financial system. Although Prime Minister Tsipras faces dissent within his own party, opposition leaders (who make up more than 100 seats in the 300-seat legislature) have indicated they are unequivocally pro-euro and will support the new deal. Though this would push through the bailout legislation, it could rupture Syriza’s governing coalition, forcing Tsipras into a minority government and making actual enforcement and implementation of the austerity reforms far less likely.
In the Middle East, skepticism mixed with celebration as Iran and a coalition if six international powers agreed to an unprecedented pact that is intended to curb Iranian nuclear ambitions in exchange for gradually easing economic sanctions on the country. Understandably, some are touting the accord as the great peace-keeping measure of this young century, while others are outraged that the West could make any concessions to a regime that has demonstrated, up to now, a complete unwillingness to work with international partners. The deal still needs to be approved by the U.S. Congress; after Israeli premier Benjamin Netanyahu controversially gave a speech in front of U.S. legislators in March urging them to reconsider the Iran deal, many Israeli officials have reiterated their dire opposition to any agreement with Iran, admitting they will seek to lobby Congress to nix the deal. In such an event, both chambers would have to reject the deal, and then override an Obama veto with a two-thirds majority in order for the agreement to be quashed.
Ms. Yellen will again address lawmakers tomorrow, speaking in front of the Senate Banking Committee. Weekly jobless claims will also be released, while the Philly Fed Business Survey and the Housing Market index will also be announced.