July 12, 2017
Investors await Janet Yellen’s testimony, U.K. real earnings slide, and the Trump email saga rattles on. Here are some of the things people in markets are talking about today.
Federal Reserve Chair Janet Yellen begins two days of testimony to Congress with a hearing before the House Financial Services Committee at 10:00 a.m. Eastern Time this morning. Her prepared remarks are set to be released at 8:30 a.m. She is expected to be questioned on the lack of wage growth despite very low unemployment, and the timing of the bank’s balance sheet reduction. Investors will be focused on any comments on fighting inflation in financial assets, which continues to rise despite four rate hikes since December 2015.
U.K. real wages
Unemployment in the U.K. fell to 4.5 percent, the lowest level since 1975, with the total number of employed people climbing to a record 32 million, according to data released by the Office for National Statistics. With inflation at 2.5 percent, the nominal regular earnings increase of 2.0 percent means real wages fell by 0.5 percent, a squeeze which S&P Global Ratings yesterday warned will hold back economic growth. The pound was trading broadly unchanged after the news, erasing an earlier drop following reported comments from Bank of England Deputy Governor Ben Broadbent saying he is not yet ready to raise rates.
The debate over connections between President Donald Trump’s election campaign and the Russian government took a new twist yesterday when Donald Trump Jr. tweeted the email conversation that led to a meeting between members of the campaign and a Russian lawyer in Trump Tower in June 2016. While the reaction to the revelation has, predictably, broken along partisan lines, members of the Senate are more likely to concentrate on passing health care legislation after Majority Leader Mitch McConnell said he is delaying the August recess by two weeks in order to get through a legislative backlog.
Overnight, the MSCI Asia Pacific Index gained 0.4 percent, while Japan’s Topix index slipped 0.5 percent after the yen jumped following comments from Federal Reserve Governor Lael Brainard on the path of U.S. interest rates. Hong Kong’s benchmark Hang Seng Index closed above the key 26,000 level for the first time in more than a month. In Europe, the Stoxx 600 Index was 0.7 percent higher at 5:40 a.m. with energy stocks leading the gains. U.S. stock market futures were broadly flat.
Bank of Canada
At 10:00 a.m. the Bank of Canada is expected to raise rates by 25 basis points to 0.75 percent, according to the majority of economists in a Bloomberg survey. Any increase, the first by the bank since 2010, may be seen by investors as confirmation of a global tightening bias amongst the world’s central bankers. Canadian two-year government yields have risen 26 basis points in the past two weeks ahead of the decision which will be followed by a press conference at 11:15 a.m.