US MARKET WRAP – Not Too Slow, Not Too Fast For Fed Chair Yellen. US Healthcare Bill (Predictably) Fails Again

Federal Reserve Chair Janet Yellen delivered a very measured statement which cautioned against a too quick or too slow approach regarding additional monetary policy tightening. The Fed Chair reiterated that she backs a gradual approach to rate hikes, particularly against a backdrop of subdued inflation and a low neutral rate. She also warned that downward pressure on inflation could prove unexpectedly persistent, although she was keen to suggest that low inflation is likely due to transitory factors. On the other side of the coin, she cautioned that the Fed should be wary of moving too gradually, and that it would be would be imprudent to leave rates on hold until inflation reaches 2%.

Elsewhere FOMC newcomer and President of the Atlanta Fed, Rafael Bostic, OK’d a December hike, and Fed governor Lael Brainard avoided touching on the outlook for monetary policy in her address.

US Healthcare reform fell at its latest Senate-based hurdle and the focus now moves to tax reform, and although US President Trump did not give any specifics he did note that an “important announcement will be made tomorrow.”

The DXY moved higher through the day, peaking as Yellen warned against moving too gradually on additional monetary policy tightening. However, her measured approach led to the greenback moving away from session highs. The USD still outperformed its major counterparts ex-CAD, which garnered a bid as Canadian Finance Minister Morneau stated that he sees “higher interest rates ahead” and as he noted that that “the Canadian economy can do well with the currency at current levels.” This pushed back against recent chatter which had suggested that government officials were unhappy with the recent BoC tightening as it has led to notable CAD appreciation. It is worth noting that BoC governor Poloz is due to speak tomorrow, and a RANsquawk primer on the speech is available here

US stocks were rangebound, and finished mixed, with telecoms posting the biggest lost on a sectoral basis, with IT outperforming. The S&P 500 closed up 0.01% at 2,496.85, the NASDAQ 100 closed up  0.24% at 5,881.34, and the Dow closed down 0.05% at 22,284.66.

Treasuries also moved lower, with yields hitting highs on Yellen, but they ultimately tracked dollar gyrations and Treasuries ended just off of worst levels in relatively tight trade. US Dec’17 10y T-note futures settled at 126.00, down 2 ticks, with CME Fed Fund futures now pricing a circa 80% chance of a 25bps FOMC hike by year end.

Crude gave back a small proportion of yesterday’s gains in a news-light session, with lows printed just in front of both the WTI & Brent 5-day moving averages. WTI crude futures settled at USD 51.88/bbl, down USD 0.34, while Brent crude futures settled at USD 58.44/bbl, down USD 0.58.

26 Sep 2017 - 21:00- Fixed IncomeBank Speaker- Source: RANsquawk