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9 Feb 2016
Fed Chair Yellen’s testimony in focus – Goldman Sachs
George Cole, Research Analyst at Goldman Sachs, suggests that one of the key events this week will be Fed Chair Janet Yellen’s semi-annual Monetary Policy Report to the Congress on both Wednesday and Thursday.
Key Quotes
“The tension between the recent tightening in financial conditions, and its potential impact on activity, and the ongoing improvement in labour market conditions will be in focus.
On Friday, we expect retail sales to bounce back from December’s weakness, forecasting core sales at 0.2% vs consensus of 0.3%.
Also this week, we expect Q4 Euro area GDP to print at 0.4%qoq, slightly above the 0.3% consensus. On Thursday, we expect a 10bp cut from the Riksbank in Sweden in response to ongoing softness in the outlook for inflation, a move that is largely already discounted by the market.
As risk sentiment faltered over the last month, global front-end rates have fallen, boosted by the return to easing through reducing interest rates by both the ECB and the BoJ. We look at the market-implied distribution of rates from options markets to see the impact of these actions.
We find that while the probabilities of negative rates – as priced by the market – have gone up in the US and UK, their rate distributions are still skewed to higher rates from here, in line with the upward sloping curves. Ultimately, we think US and UK rates will reprice higher, benefiting USD and GBP.”
Key Quotes
“The tension between the recent tightening in financial conditions, and its potential impact on activity, and the ongoing improvement in labour market conditions will be in focus.
On Friday, we expect retail sales to bounce back from December’s weakness, forecasting core sales at 0.2% vs consensus of 0.3%.
Also this week, we expect Q4 Euro area GDP to print at 0.4%qoq, slightly above the 0.3% consensus. On Thursday, we expect a 10bp cut from the Riksbank in Sweden in response to ongoing softness in the outlook for inflation, a move that is largely already discounted by the market.
As risk sentiment faltered over the last month, global front-end rates have fallen, boosted by the return to easing through reducing interest rates by both the ECB and the BoJ. We look at the market-implied distribution of rates from options markets to see the impact of these actions.
We find that while the probabilities of negative rates – as priced by the market – have gone up in the US and UK, their rate distributions are still skewed to higher rates from here, in line with the upward sloping curves. Ultimately, we think US and UK rates will reprice higher, benefiting USD and GBP.”