After surprisingly weak May NFP the chances of rate hike in June have almost completely vanished. But despite the markets caught unaware with abrupt drawdown on the labor market, Monday speech of Janet Yellen shows US Fed Reserve remains upbeat on the prospects of economy growth.
According to the Fed chair comments the odds of monetary tightening in coming months are still there as “the economy pickup outweighs the threats”. Of course, weakest for six years Payrolls has considerably eroded “growth picture” but continuously declining jobless rate as well as rising inflation may argue about solid underlying momentum in the US economy. Her last note that any surprises in economic updates or changes in external risks can change views on rate hike made further Fed actions completely uncertain.
There were four factors mentioned that can hamper US growth – slowing demand and manufacturing, inflation and shaky world economy. But still Yellen noted that these factors are offset by “overall good health of US market”.
Low level of skepticism in Yellen speech shows that Fed is quite determined to raise rates if not in June than in July. According to Fed Rosengren a slump in May payrolls could be an isolated change which doesn’t fit in overall trend in US labor market so needs further investigation. Atlanta and St Louis Fed heads Dennis Lockhart and James Bullard also lean towards rate liftoff in July, though pointing to small chance for that move in this month.
Quick rebound of US index suggests Fed support won’t probably let greenback fall too much and its unlikely to see the index dropping below 93.50 level. For EUR/USD respective range is 1.1300-1.1450. Though the conference failed to provide any significant support to US currency as well. USD Index climbed above 94.00 level after hitting a low at 93.74 on Monday. EUR/USD retreated to 1.1350 after trying to test 1.14 level, USD/JPY also saw a short-lived relief bouncing form 106.50 to 107.00 level.
Both Crude benchmarks hover near $50 level, remain cautious as US production shows signs of recovery according to Baker Hughes last week release (+9 wells to rig count). Current level of Oil prices seems to be enough trigger for unfreezing US shale industry so even amid rising demand in Asia there is little chances to see prices extending current growth.