U.S. Durable Goods Crush Estimates, Raising Rate Hike Chances

The financial markets were mixed and volume below average on Thursday as many of the major players stood on the sidelines ahead of Fed Chair Janet Yellen’s speech a Jackson Hole, Wyoming central bankers’ symposium on Friday. Traders will be listening for clues as to the timing of the next Fed rate hike.

Going into the speech, investors have priced in a 24 percent chance of a rate hike in September, a 57 percent chance of a December rate hike and a 100 percent chance of a 25-basis point rate hike in September 2017. It’s a fairly wide spread, but it indicates that the biggest surprise will come if Yellen says a September rate hike is still a possibility. It looks as if a December rate hike wouldn’t cause much turmoil in the markets since both sellers and buyers seem to be accepting to this idea.

Yellen doesn’t have to address Fed interest rates in this speech. She can save that for her next press conference. However, not saying anything will create more volatility and uncertainty in the markets which will likely be bearish for the equity markets.

U.S. stock indices traded higher on Thursday after early session weakness. However, the low volume kept a lid on any strong rallies. The Dow Jones Industrial Average rose about 10 points. The S&P 500 was up about 0.15 percent and the NASDAQ composite gained about 0.2 percent.

The U.S. Dollar was relatively flat despite growing support for an interest rate hike in 2016. Dallas Fed President Robert Kaplan said in a Thursday interview with CNBC that the case for raising interest rates is gaining strength.

In U.S. economic news, Initial jobless claims fell for a third straight week to 261,000 and Durable goods orders for July rose 4.4 percent, above expectations. The durable goods data was so strong that some traders said it may make a difference with respect to what Yellen will say on Friday.

The Euro was up about 0.20 percent against the dollar to 1.1278. The EUR/USD rose despite stronger U.S. economic data and a weak German IFO survey showing German business morale deteriorated sharply in August as Brexit shock weighed on sentiment among executives.

The GBP/USD was lower, but still supported on the downside. Sentiment may be ready to shift to the positive side if investors start to reduce the odds of a Bank of England rate cut and additional stimulus in September. Apparently there is growing support for the idea that leaving the European Union may not be a bad for the UK economy as previously thought.