Wednesday November 4

Stocks ease back after Janet Yellen communicates a similar stance to last week. The S&P500 fell 0.4% to 2,102 while the Dow Jones fell 0.3% to 17,867. Comments made by Yellen today led traders to further believe that higher interest rates as soon as December are becoming more of a possibility. Interest rate futures reflect a 58% chance of tightening in December as to only 50% before Yellen’s statement. Non-farm payrolls are expected to come in strong next week as today’s ADP showed that 182,000 jobs were created last month which was a strong report. ISM non-manufacturing data was also strong increasing to 59.1 from 56.9 with the employment component of the index reflecting improvement. The US dollar rose 0.8% against peers. The currency gained 1% against the euro to $1.0862 and 0.4% against the yen to Y121.52. The two year yield gained  basis points to 0.82% and the ten year yield added 1 basis point to 2.23%.
Janet Yellen reiterates the key points from last week’s FOMC meeting in a congressional hearing. She said that global risks and potential effects on the US economy have lessened and that the labor market has tightened throughout the year. According to Yellen the December 15 meeting represents a “live possibility” for interest rates to increase for the first time in several years.  For the first time since the tightening has been in play, the Fed targeted a specific meeting and date in which rates may begin to rise. However Yellen once again communicated that the decision at that point will be data dependent. In response to these comments the dollar rose along with short term yields. When questioned about the potential adverse effects on the housing market Yellen reiterated that further increases would be “gradual and measured.”
Interest rates in Europe are set to fall even further into negative territory for some countries. These expectations for even lower yields are as a result of Mario Draghi’s statement late last month which led market participants to believe that bond purchases will be increased in some way. The German two year yield fell from -0.26% to -0.35% and Switzerland’s two year have touched as low as -1%. Investors are only buying these negative yielding assets with the expectation for further price appreciation as a result of increased demand from the central bank. Similarly investors are guessing that the deposit rate will be further cut from -0.2% to -0.28%. Other major central banks that have used negative interest rates are Denmark, Sweden, and Switzerland. Central banks are implementing these unusual policies in order to spur lending and credit activity to restore economic growth and inflation.
A BlackRock investment in an African gold mine was victim to falling commodity prices and volatility that typically is associated with such investments. One fund invested in a gold miner called Banro that missed out on the gold rally and is now suffering with the rest of the commodity market. Political, corporate, and operational risks were a large drag on the company’s performance and it was near in insolvency in 2014.
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Wednesday November 4

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