Wednesday July 15

Stocks fall slightly as economic data slightly beats expectations. The S&P500 fell 0.1% to 2,107 while the Dow fell marginally to 18,050. The PPI was slightly higher than expected, reading 0.4% verses the expected 0.3%. Core PPI was 0.3% against the expected 0.1%, reflecting stronger than expected but still not overwhelmingly strong price pressure. Industrial production rose 0.3% against the expected 0.2%. The dollar index rose 0.6% after Janet Yellen’s testimony is seen as optimistic for the US economy and rate hikes on the nearer end of expectations. The 2 year yield fell 2 basis points and the 10 year fell 5 basis points to 2.35%. Peripheral yields in Europe continue to fall, and the German bund yield falls 7 basis points to 0.77%.

Janet Yellen says the Fed is on track for a 2015 rate hike. According to Yellen, the economic outlook is “favorable” as employment is getting close to the desired level, and factors that are currently contributing to low inflation are temporary. She cites Greece and China as the key risks. The euro fell 0.33% to $1.0974 and the yen fell to Y123.80 following her comments. This is due to the expectation that the Fed will soon raise rates making it more desirable to hold dollars over foreign currencies. The FOMC is divided regarding the details of the hike. Some members believe 2 increases in 2015 are appropriate, some believe 1, and others believe 0. She reiterated that low inflation was due to “transitory” conditions. Consumer spending and auto sales rose and may, and will continue to rise as a result of low gas prices. She noted fixed income valuations and the fast pace of issuance by low rated companies as areas of concern.

Canada cuts interest rates in another sign of low oil prices hurting the economy. The growth forecast was cut from 1.9% this year to 1.1% as the Canadian economy contracted for the first six months. The main interest rate was lowered 25 basis points to 0.5%. As a result the canadian dollar fell 1.5% to $C1.29 (canadian dollars per usd). The canadian dollar is down 10% so far this year versus the dollar as the country is also hurt by China’s slow growth.

Tension is high in Greece as Tsipras is trying to convince members of his parliament to accept the new deal. Protestors who are opposed to further cuts in spending and additional austerity measures clash with riot police outside of the parliament. Tsipras is now expected to get the vote to pass as opposition parties appear to want the €86bn bailout. Within his own party is a different story as internal conflict continues within Syriza.

Wednesday July 15

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