Janet Yellen said that the discount rate may be increased earlier than expected


16/7/2014

A reduction of most of world stock indices was observed on Tuesday. The U.S. Federal Reserve Chairman Janet Yellen said that the discount rate may be increased earlier than expected, if macroeconomic indicators continue to improve. After that the U.S. currency significantly strengthened.

As for the stock market, she noted that the assessment of separate companies may be overestimated, including small cap, biotechnology, as well as media and social network sectors. In this regard, the Nasdaq and S&P500 indexes fell down. The Dow Jones industrial average rose due to the good quarterly reporting and the rise in prices for the shares of JPMorgan Chase and Goldman Sachs. IBM signed a contract with Apple for supplying mobile devices to corporate clients, which led to rise in their share prices. Yesterday's US economic data were worse than the preliminary forecasts. In June retail sales increased less than expected. Nevertheless, a number of investment banks, including Goldman Sachs, raised the GDP growth forecasts for the second quarter to 3-3.4%. Trading volume on the U.S. exchanges was almost 13% above the monthly average yesterday. The expected news from the U.S. for today are: the Producer Price Index (PPI), expected to be released at 12-30 CET, industrial production at 13-15 CET and the economic review of “Beige Book” at 18-00 CET. At 14-00 CET the Fed Chairman Janet Yellen will give another speech. However, it is unlikely to be as significant for the financial markets, as it was yesterday. In our opinion, the forecasts for the U.S. data are negative. However, stock index futures are traded positively. We believe that this is the reaction to the strong macroeconomic indicators of Chinese economy, as well as good reporting of Intel, released on Tuesday after the closing of trades. The Bank of America will report today before the trades start.

Yesterday on the European exchanges the decrease of quotations took place. German macroeconomic index of investor’s confidence (ZEW) collapsed to its lowest level for July since December 2012. The fall of share prices of the Portuguese Banco Espirito Santo by 14.6% added an additional negative. Some investors suggested that its problems will affect the economy of Italy, Spain and Portugal. Today, the EU stocks are rising after the release of Chinese statistics. The Chinese GDP growth slightly exceeded the forecasts in the second quarter and became equal to 7.5%. Industrial production in June also turned out better than expected and increased by 9.2%. We do not exclude that it may contribute to the growth in quotations of commodity futures. The European data on foreign trade are expected to be released today at 9-00 CET. The forecast is positive.

Nikkei rose slightly today with the global trend within its neutral trend along. Let us note that tonight the weekly data on investments from the Japanese Ministry of Finance is expected to be released, and the next significant macroeconomic information will be released only on July 24th.



Today the Oil prices are corrected upward after the decline of the previous three weeks. Its consumption in China for June peaked within 17 months and equaled to 10.2 million barrels per day. Compared to May, it increased by 8.4%. China imported 5.66 million barrels of oil per day in June. The American Petroleum Institute expects the U.S. inventories to be reduced in a week by 4.8 million barrels, market participants expect 2.75 million decline. This is an additional factor of the price growth. The official data will be released today at 14-30 CET.



The natural gas price continues to decline. The Chilean company (ENAP) stated it was going to start exporting liquefied shale gas to the U.S. in the beginning of 2016. The response from the U.S. authorities has not received yet, but the approval had been given previously. Let us note that the current decline in gas prices occurs despite the fact that its reserves in the United States are a quarter below the last year's level.



The Gold price declined significantly due to the possible increase of the interest rates in the U.S. earlier than expected. Futures trading volume in the United States are below the average by 23% for 100 days.




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