On Wednesday US Labor Department reported that producer price index (PPI) in October remained unchanged against the forecast of +0.3%. On annual basis PPI has increased only by 0.8% against the forecast of +1.2%. This data shows that inflationary pressures remain weak.
In response to the release of the inflation indicators the US government bonds began to rise while their yields are declining after the fall in the stocks for the consecutive 6 sessions. Yesterday, the yield on 10-year U.S. government bonds amounted to 2.222% against 2.240% on Tuesday.
It is not yet clear how protectionist policy, which is supposed to be conducted by Trump, can affect the global economy, and this fact can reduce investors’ confidence that public expenditure in the US will be expanded.
Earlier, expectations of the fiscal stimulus and the rise in the yields of the US government bonds caused the rise in the USD to its highest level in 13 years.
Investors bought American currency amid growing expectations that Donald Trump will introduce stimulus measure of tax privileges and the increase of expenditures on infrastructure in order to support the largest economy of the world through new tax incentives and continued expenditures.
The rise in yield of the US government bonds also contributed to the rise the USD. The ICE index, which shows the position of the USD against a basket of six major currencies, has grown to 100.57, the highest level since April 2013.
On Wednesday, investors sold stocks of the banks and industrial companies after the recent rally caused by the victory of Donald Trump in the US presidential election. On Wednesday the index S&p 500 fell by 0.2% from recent local highs of 2186.0. The sub-index S&p 500 fell by 1.4%. Shares of Goldman Sachs Group, J. P. Morgan Chase & Co. and Caterpillar, which rose by over 10% after the election, have also dropped on Wednesday.
Earlier, the Banks’ stocks were rising because of the investors’ optimism about the increase in budget spending, tax cut and easing of regulations in the USA.
However, the enthusiasm of the market participants is slightly fading away. Yesterday the Fed representatives expressed slightly amended outlooks of the monetary policy.
Fed Philadelphia governor Patrick Harker said on Wednesday that it is too early to expect the rate hike in December, as future policy of the Republicans and President Donald Trump in the country is not yet clear. Mr. Harker said that he was not sure that the Fed should raise interest rate, taking into account changes to the political environment in the United States.
Fed Dallas governor Robert Kaplan said on Wednesday that his recent statement about the possible increase of the key interest rate has been interpreted incorrectly, as he is not in favor of additional tightening of monetary policy.
At 18:00 (GMT+3) - a speech of the Fed Governor Janet Yellen. Investors expect that she will clarify future policy of the Bank and probability of the interest rate hike at the meeting on 13-14 December.
If her speech will show possibility of the rate hike till the end of this year, the USD will rise in the market, as well as American stock indices.
Janet Yellen repeatedly say that the rise in the interest rate will indicate stability of the American economy, which is a positive factor for the stock indices.
At 16:30 - important macro-economic indicators in the United States, including consumer price index for October, index of business activity in the manufacturing sector from Philadelphia Fed in November, as well as the number of the initial unemployment applications for a week.