Stocks advanced after an unexpected drop in retail sales damped expectations of a rise in interest rates in the immediate future. FRB Chair Yellen testifies today to Congress about the health of the economy and monetary policy. In past statements, Yellen is expecting strength in the consumer sector to justify the first increase in interest rates since 2006. As widely known, the Committee is forecasting to raise rates twice this year.
Oil ended higher on the day, a surprise to some given the tentative Iranian accord. Oil has been crushed about $8 in three weeks leading into today’s announcement, an announcement many viewed as inevitable given the near universal acceptance the Administration would accept almost any deal.
As I have noted in past, a view now becoming endorsed by the markets, it will take considerable time for Iranian capacity to come on line, perhaps six to eighteen months depending upon the source.
What happen today? To write the obvious, Yellen’s testimony can skew the markets.
Last night the foreign markets were up. London was up 0.25%, Paris up 0.20% and Frankfurt up 0.20%. Japan was up 0.38% and Hang Sang down 0.26%.
The Dow should open little changed before Yellen’s testimony, a testimony that is expected to include a forecast of at least two interest rate increases during the second half of the year. In many ways, I am dreading the intense narrative that will be associated with these increases. The 10-year is up 1/32 to yield 2.40%.
Chief Economic Strategist Managing Director
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