Market Summary
Investors continue to search for clues on when the Federal
Reserve will raise interest rates. San Francisco Fed President John Williams
said the Fed would likely hike federal funds rate later this year. He
reiterated Fed Chairwoman Janet Yellen's views that the central bank may raise
interest rates this year as she believes soft economic data will not have a
lasting effect on the economy. St. Louis Fed President James Bullard said that
he wants "confirmation" that the economy is rebounding before hiking
interest rates. Additionally, Minneapolis Fed President Narayana Kocherlakota
said: "It follows that monetary policy makers should be extraordinarily
patient about reducing the level of monetary accommodation."
The major indexes scored a second consecutive month of
gains. The benchmark S&P 500 index and Dow Jones industrial Average each
gained about 1% in May, while the tech-heavy Nasdaq Composite gained 2.6%. The
S&P 500 index shed 0.9% over the past week and Dow Jones Industrial lost
1.2%. Following three weeks of gains it was the first weekly decline for the
S&P 500. The Nasdaq ended the week 0.4% lower. Year-to-date Treasury bonds
are the only major asset class in the red.
Investment Analysis
The dollar rally reasserted itself in May, after the buck
snapped a nine-month winning streak by finishing lower against the euro in
April. Commodities are priced in U.S. dollars, so as the greenback moves
higher, instruments like oil and gold generally move lower, and the inverse
applies due to the strong correlation in the moves. In the beginning of the
week, the U.S. dollar moved higher on a Durable Goods Report suggesting
business investment is slowly starting to pick up following
stronger-than-expected Consumer Prices last week. Treasury prices finished the
week higher, driving yields down to their lowest level in a month, on a report
that showed that the U.S. economy contracted in the first three months of the
year. Bad news has been a boon to the bond market because it usually compels
investors to shed riskier assets in favor of safe havens, like Treasury's. A
meaningful recovery in U.S. economic data, beginning with the nonfarm payrolls
report for April, coupled with a reassuring statement from Yellen saying
implying that the Fed intends to raise rates this year dispelled worries that
the central bank might wait until 2016. Higher interest rates typically draw
foreign flows into a given currency, helping it strengthen against its rivals,
by increasing the yield on deposits held in that currency.
By Gregory Clay
Investment Strategist
Click here to
gregoryclay@theoptionplayer.com
P.S. click on http://www.theoptionplayer.com/
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