US markets flat, but in the green with the S&P 500 on track for its largest weekly gain since March, helped by gains in consumer discretionary and health stocks.
Here is the current market situation from CNN Money
North and South American markets finished mixed as of the most recent closing prices. The IPC gained 0.72%, while U.S.'s S&P 500 was off 0.02%. Shares in Brazil were unchanged with the Bovespa at 49,482.86.
Crude oil prices are back below $50 in early trading on a round of profit taking by investors and with the U.S. dollar perking up. Traders are also positioning themselves ahead of the next OPEC meeting scheduled for just around the corner on June 2. Energy market watchers are unsure if key OPEC members will agree on a production cap or increase output. WTI crude is down 0.9% to $49.05/bbl, while Brent crude trading in London is 0.89% lower at $49.15/bbl.
WASHINGTON (Reuters) - Federal Reserve Chair Janet Yellen has struck a largely cautious tone since engineering the U.S. central bank's rate hike last December, saying she was not convinced inflation had taken firm enough hold to justify a second move and that she was worried a weak global economy put the United States at some risk.
(Reuters) - Wall Street was higher in late morning trading on Friday, with the S&P 500 on track for its largest weekly gain since March, helped by gains in consumer discretionary and health stocks and ahead of a speech by Federal Reserve Chair Janet Yellen.
WASHINGTON (Reuters) - U.S. economic growth slowed in the first quarter although not as sharply as initially thought, as a surge in home building and steady inventory accumulation partially offset the drag from a steep decline in business investment.
WASHINGTON (Reuters) - Eight automakers said on Friday they are recalling more than 12 million U.S. vehicles for defective Takata air bag inflators, widening the largest-ever auto safety effort to more passenger-side devices.
KHOBAR, Saudi Arabia (Reuters) - Saudi oil giant Aramco is gaining market share and pushing for greater efficiency, chief executive Amin Nasser said in an interview, as it acts as a "bridge" to a future when the nation relies less on energy exports.
SINGAPORE (Reuters) - A former wealth manager of troubled Swiss private bank BSI was denied bail by the Singapore High Court on Friday and will await his trial in prison for two of the nine charges that are part of the city-state's investigations into money laundering.
Even the most skeptical among us have to be impressed by the rip higher in U.S. equities over the past week. Absent an obvious positive catalyst, the S&P 500 Index (SPX, 2090.10) jumped 2.5% after flirting with lows since March and a potential test of the 200-day moving average.
More broadly, the SPX is just revisiting the top end of its range back to late 2014 while equity volatility has shifted back to a trough though importantly without having descended to a level that suggests a structural change in the high-volatility regime.
Still, there is little doubt that if stocks do manage to break out and sustain fresh highs than the broad swath of volatility metrics will collapse to levels more indicative of a low-volatility cycle. The period dating back to last August will have been an anomaly relative to historical regimes that have lasted upwards of five years. We are skeptical of that outcome and see support from measures of crossasset and geography risk that remain elevated (GFSI Index in left graph).
As of next week, the U.S. economic expansion will reach its seven year anniversary. The prior three cycles since 1990 averaged 95 months in length measured from trough to peak. That puts the current cycle just shy of a year from eclipsing the mean duration. As MKM Partners Chief Economist Michael Darda points out, business cycles historically survive for around two years once the Fed begins tightening. If the U.S. cycle is late in its expansion then it follows from precedent that volatility broadly but more specifically U.S. equity implied volatility should remain structurally elevated into and through an eventual recession (and likely bear market) before subsiding once the next sustained recovery has begun.
Dove, hawk, or nothing at all? That's the question as Fed chief Janet Yellen speaks after she receives the Radcliffe Medal from Harvard University's Radcliffe Institute for Advanced Study. There are no prepared remarks, but a scheduled 30-minute Q&A session with Greg Mankiw could give insight into Yellen's thoughts on two key issues: whether she now has more faith that recent evidence of rising inflation is convincing, and the degree to which she feels overseas risks have receded. Most (including the market) expect Yellen to stick to the hawkish meme ascribed by the latest FOMC statement and numerous Fed speakers. Some, including DoubleLine's Jeff Gundlach expect a dovish Yellen to re-appear. Still others believe she will say nothing at all - instead waiting for a more formal speech on June 6 to drop her tape bombs.
As SocGen notes, Fed Chair Yellen will be honoured at Harvard, with a conversation on her achievements at the ceremony. However, little emphasis on the monetary policy outlook is expected at this event. The appearance to look forward to will be the Chair's speech in Philadelphia on June 6, the Monday following the May employment report and a day before entering the blackout period for the upcoming FOMC meeting.
Live Feed (The event started at 1030ET with Yellen is due to speak at 1315ET.. though it appears they are running late)...
*BERNANKE SAYS WE'RE LUCKY TO HAVE YELLEN LEADING THE FED
*YELLEN: AMERICA OWES BERNANKE ENORMOUS DEBT OF GRATITUDE
*YELLEN: CAPITALISM IS BEST ECONOMIC SYSTEM BUT CAN BREAK DOWN
*YELLEN: WE WANT TO DO EVERYTHING TO HEAD OFF A FINAN ...
Following last week's unchanged oil rig count - breaking a 21-week streak of declines - as the rig count inflected perfectly with lagged oil prices. However, despite a rise in lagged oil prices, the oil rig count declined 2 to 316 this week - new lows since Oct 2009. Total rig count dropped to 404 - a new record low. Crude traders appear to have left for the day as there was no visible reaction to this data.
With Janet Yellen due to speak in under an hour (in a speech that will be a big dud because as SocGen notes, "little emphasis on the monetary policy outlook is expected at this event"), a recurring question is why does the market remain so nonchalant about the possibility of a rate hike as soon as one month from now.
One of the better explanations on the matter comes from Citi's Steven Englander, according to whom it boils down to the market's sentiment about what happens with the Fed's hiking path after the first hike. As the Citi strategist points out, this is merely the latest feedback loop the Fed has found itself trapped in:
Asset markets have done very well since the fed funds market began pricing in a summer hike. The question is why? We think that investors are trading the equation
an extra 2016 hike but very little else + better Q2 growth data = stronger asset markets
The question is whether this is a sustainable equation. Better growth, if sustained, is likely to induce more hikes. If we go from ~2.5% GDP in Q2 to 1.5-2% subsequently, we are likely to unwind the recent optimism.
Or maybe we won't, because the only thing more bullish than a hawkish Fed is a dovish Fed. Let's assume for the sake of this argument that the market is, like it was in December, fixated on the favorable "growth" outcome as a result of an upcoming rate hike (something with Jeff Gundlach mocked two days ago), as the alternative of yet another Fed policy error may be just too much of a shock. Here is why Eglander is cautious in reading this interpretation:
On the better sustained growth/faster hiking scenario, the slope of the Fe ...
After Zoomlion abruptly pulled the plug on buying U.S. equipment maker Terex, other potential takeover targets might want to grill their Chinese suitors on whether they have the cash, or are truly willing to pay the price.
ECRI's WLI Growth Index which forecasts economic growth six months forward expanded marginally and remains in positive territory for the ninth week - after spending the previous 34 consecutive weeks in negative territory.
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