BLBG: Dollar Edges Lower Before Yellen as European Stocks Fluctuate
Yellen speech may provide clues to U.S. interest-rate outlook
Oil heads for first weekly August drop as no output cut seen
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Caution prevailed in financial markets before a speech by Federal Reserve Chair Janet Yellen, with the dollar paring a weekly advance, while European stocks and U.S. futures fluctuated.
The U.S. currency fell against most of its major peers as investors looked toward Yellen’s address for clues on the timing of U.S. interest-rate increases. Most European stocks slid, with Vivendi SA leading media companies lower as earnings disappointed, while S&P 500 contracts were little changed as the index headed for a weekly drop. Oil declined, poised for its first weekly retreat this month. The pound was on course for a second week of gains on optimism that the fallout from Britain’s vote to leave the European Union may not be as severe as feared after a report showed a pickup in U.K. consumer confidence.
Yellen speaks Friday at an annual gathering of central bankers in Jackson Hole, Wyoming, after comments by Fed officials in the past week signaled the economy is strong enough to withstand higher borrowing costs. Odds of a rate increase this year climbed to 55 percent this week even as evidence of uneven global growth casts doubt over the central bank’s willingness to tighten policy amid monetary easing in Asia and Europe.
“Don’t expect Yellen to give a clear guidance in Jackson Hole,” said Ulrich Leuchtmann, the Frankfurt-based head of currency strategy at Commerzbank AG. “The Fed is data dependent at this point. Yellen’s topic is the ‘Fed’s toolkit’ and in talking about this she has to speak about expansionary instruments as well. She may say she can act in all directions. There is risk of market misinterpretation.”
Jackson Hole has been a big market mover only once in the past decade, when former Fed Chairman Ben S. Bernanke signaled the second round of quantitative easing in 2010, according to Bank of America Corp. Data Friday showed the U.S. economy grew less than initially estimated in the second quarter, while economists forecast that a separate report will show consumer sentiment improved in August.
Currencies
The Bloomberg Dollar Spot Index slipped 0.2 percent as of 8:35 a.m. New York time, leaving it up 0.2 percent for the week. Dallas Fed chief Robert Kaplan said Thursday the pace of interest-rate increases in the U.S. should be “patient and gradual” to limit impact on the dollar, while his Kansas City counterpart said it’s already time to move. Futures put the probability of a September rate hike at 30 percent, up from 22 percent a week ago.
“The outcome of the Fed’s Sept. 21 meeting will be largely determined by the tone of Janet Yellen’s speech at Jackson Hole,” said Sean Keane, an Auckland-based analyst at Triple T Consulting and a former head of Asia-Pacific rates trading at Credit Suisse Group AG. If she continues the confident tone of some of her colleagues, “market expectations for a September rate increase will likely move up closer to 60 percent to 70 percent,” he said.
The pound was little changed, heading for a 1 percent weekly advance, as a report showed U.K. consumer confidence rose the most in more than three years this month after the shock from Britain’s decision to leave the European Union faded. That adds to data last week that showed the initial economic effect of the U.K.’s secession may not be as severe as some economists feared.
The yen traded at 100.28 per dollar, set to end the week little changed. Japanese inflation data on Friday showed a fifth straight month of consumer-price declines, underscoring the challenges facing the Bank of Japan as it uses unprecedented monetary stimulus to try and revive the economy and inflation.
The MSCI Emerging Markets Currency Index was little changed, leaving it down 0.4 percent on the week. The rand slid 3.9 percent in the period after President Jacob Zuma’s support failed to allay investor concern that Finance Minister Pravin Gordhan will be removed from his post. Gordhan is facing a police probe into allegations of irregularities at the tax authority, which he headed from 1999 to 2009.
Stocks
The Stoxx Europe 600 Index slipped 0.1 percent, paring its weekly advance to 0.5 percent. The gauge has been trading in a tight range for most of the month, struggling to find a direction after a rebound of as much as 12 percent following the aftermath of the U.K. secession vote.
Vivendi fell 4 percent, leading a gauge of media companies to the one of the biggest declines of the 19 industry groups on the Stoxx 600. Gemalto NV climbed 5.5 percent as the software firm posted an increase in net profit and said it is interested in buying Safran SA’s Morpho.
Rio Tinto Group and Glencore Plc led a gauge of commodity producers to the best performance of the 19 industry groups on the Stoxx 600 as metals prices advanced.
S&P 500 Index futures were little changed after U.S. equities slipped 0.1 percent on Thursday.
The MSCI Emerging Markets Index has dropped 1.2 percent since Aug. 19, halting six weeks of gains, the longest winning streak in more than three years.
Commodities
Crude oil was little changed at $47.34 a barrel. Saudi Arabia’s energy minister said an output freeze would be positive for the market, ruling out a cut. Oil fell earlier this week after a government report showed that U.S. crude inventories unexpectedly rose.
Gold advanced 0.6 percent, paring its biggest weekly decline in more than a month, having fallen this week as speculation built that the U.S. will boost interest rates this year.
