Yellen to remain until 2018 despite Trump’s comments.

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All eyes were on Janet Yellen’s testimony on the economic outlook, delivered before the Joint Economic Committee. Yellen readied markets for an interest rate rise to come ‘relatively soon’, noting that the case for a hike would continue to strengthen as long as the macroeconomic environment remained strong.

She also signalled the need for the FOMC to avoid delaying rate increases for too long, as ‘it could end up having to tighten policy relatively abruptly’ in the future, if the economy begins to overheat. Yellen also outlined her intention to stay in her post until 2018, serving her full four-year term as Fed Chair. In doing so she put an end to speculation that she might resign following Trump’s criticism of her policies during the presidential campaign.

CPI and Initial Jobless Claims raise case for rate hike

Data received yesterday also enhanced the case for a rate hike in December, as headline CPI numbers picked up in October and were in line with expectations at +0.4%. The labour market is resilient as Initial Jobless Claims fell to 235k – their lowest in over 40 years. The only disappointment was the Philadelphia Fed PMI for November, which came in at 7.6 against an expected 7.8.

Pound enjoys rebound

Over in the UK, the pound continues to enjoy a rebound, holding steady against the US dollar as retail sales out of the UK yesterday provided welcome support for the pound, as stronger than expected consumer spending in the month of October helped drive it higher. Retail sales increased 1.9% and this was 4 times greater than forecast, as chilly weather drove UK clothing and footwear sales to a 30 month high according to data. This strong reading will be welcome news as it is likely to provide a major boost to fourth quarter GDP growth.

Data to come

In Europe investors will receive the October PPI report out of Germany (where wholesale inflation is expected to head back into positive territory, but remain fairly subdued. In the US we have the Conference Board Leading Index for October (+0.1% MoM expected; +0.2% previous) and the Kansas Fed manufacturing survey for November due.

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