Central banks drive market dynamics - 5.11.2015

US stocks ended lower on Wednesday as oil shares declined and investors grew cautious on Fed Chair Janet Yellen comments about possible interest rate hike in December. The dollar strengthened against most major currencies with the ICE dollar index, a measure of the dollar’s strength against a basket of six currencies, rising 0.68% to 97.85. The S&P 500 live data indicate S&P 500 declined 0.35% led by energy sector which lost 1%. Fed Chair Janet Yellen on Wednesday made the case for interest rate hike pointing to low unemployment, continued growth and anticipation of a coming return of inflation as signs that the economy is ready for interest rate hike. She said the central bank will make the decision based on incoming information and will take a gradual approach to further hikes so that housing and other key markets are not disrupted by rising rates. Treasury yields rose after Fed Chair’s hawkish comments, driving up also the implied probability of rate hike in December to about 56% from 52% the previous day as measured by CME Group Fed Watch tool. In economic news Automatic Data Processing Inc report showed 182,000 jobs were created in private sector. Tomorrow monthly jobs report will be released and an increase in private employment in line with market expectations will support the case for interest rate hike in December. Today at 14:30 CET Initial Jobless Claims and Continuing Claims will be released in US, together with the preliminary third quarter Nonfarm Productivity and Unit Labor Costs. The tentative outlook is positive.

European stocks ended higher on Wednesday supported by dovish comments of European Central Bank President Mario Draghi that policymakers were ready to expand the monetary stimulus program in December if needed. The euro weakened against the dollar hitting 3-month low. The Stoxx Europe 600 index rose 0.5%. Germany’s DAX 30 index underperformed again and fell 1% as Volkswagen shares tumbled 9.5% after the car maker announced it found faulty emissions readings in gasoline-powered vehicles also. Analysts note that corporate earnings reports are mixed with 55% of STOXX Europe 600 companies having reported earnings so far this quarter, of which 49% have beaten or met expectations, with 51% missing forecasts. Today German factory orders for September came in lower than expected, showing 1% contraction year-on-year not-seasonally-adjusted following a 1.7% rise in August. Today at 10:00 CET the European Central Bank publishes the monthly Economic Bulletin. At 10:10 CET October Retail PMIs will be released for Germany, France and euro-zone. At 11:00 CET September Retail Sales will be published in euro-zone. The tentative outlook is positive. At the same time the European Commission releases Economic Forecasts for member states over the next 2 years. And at 11:45 CET ECB President Draghi speaks in Milan.

Nikkei gained 1% toady and closed near 10-week high as investors bought exporter shares on anticipation of earnings boost from weaker yen and market sentiment was bolstered by positive corporate reports.

Oil futures prices are edging up after falling 4% on Wednesday on rising US crude inventories.

Gold for December delivery is gaining today after falling 0.7% on Wednesday as bullish comments by Fed Chair Yellen pointed to increased likelihood of interest rate hike in December and blunted the demand for the safe haven metal.