Friday Morning Cheat Sheet: 3 Stories Moving Markets



It’s Friday, November 15, and the Federal Reserve is back in the spotlight. U.S. equities advanced on Thursday after Janet Yellen — President Barack Obama’s nominee to replace current Fed Chair Ben Bernanke when his term expires at the end of  January — sat before the Senate Banking Committee and largely confirmed market expectations that there would be no sudden policy changes under her leadership.

At 8:30 a.m. Eastern, Dow futures were up 0.18 percent, S&P 500 futures were up 0.2 percent, and Nasdaq futures were up 0.13 percent.

Here are three stories to keep an eye on.

1. Yellen’s confirmation hearing

Yellen’s Senate hearing covered a lot of ground on Thursday, but observers seemed to leave with only a few key impressions. First and perhaps foremost, Yellen’s comments confirmed that she is likely to be as dovish as the market has come to believe. Not that inflation is a particular concern for the U.S. economy at the moment — in her opening remarks, Yellen simply said that “inflation has been running below the Federal Reserve’s goal of 2 percent and is expected to continue to do so for some time” –  but it was pretty clear that her heart is with the unemployed.

Overall, Yellen struck an upbeat note about the economic recovery to date and the course that the economy is expected to take in the near future. “”Our country has come a long way since the dark days of the financial crisis,” she said in her opening statements, “but we have farther to go.”

2. European economic conditions

Inflation contracted 0.1 percent on the month in October in the euro area, according to a report from Eurostat. Annual inflation clocked in at just 0.7 percent, down 0.4 percentage points from 1.1 percent in September, and well below the year-ago level of 2.5 percent. Prices in the European Union also fell 0.1 percent on the month, advancing 0.9 percent annually. This is down from 1.3 percent in September and 2.6 percent in October of last year.

“In keeping with the broad-based weakness in aggregate demand, underlying price pressures remain subdued, as well,” said Mario Draghi, president of the European Central Bank, in an October speech in New York. “Annual euro area headline inflation is projected to reach 1.5 percent this year before declining to 1.3 percent in 2014. These levels are historically very moderate and remain in the lower part of the range of values that the ECB’s Governing Council has identified as consistent with the ECB’s quantitative definition of price stability. That said, inflation expectations continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2 percent over the medium term. And the risks to the outlook for price developments are expected to be broadly balanced.”

On Thursday, Eurostat reported that third-quarter gross domestic product increased by 0.1 percent in the euro area and by 0.2 percent in the EU28.

EU Inflation

Source: Eurostat

3) U.S. manufacturing

Business conditions worsened for New York’s manufacturers in November, according to the most recent Empire State Manufacturing Survey. The report is compiled by the Federal Reserve Bank of New York, which regularly surveys regional manufacturers and maintains various indexes related to business activity. The general business conditions index fell four points to -2.2, its first negative reading since May. New orders slipped 13 points to -5.5, while shipments fell 14 points to -0.5.

“This month, 23 percent of respondents reported that conditions had improved while 25 percent reported that conditions had worsened,” according to the report.

The index for labor market conditions fell but stopped just short of being negative and closed the month at 0. The index measuring the average length of the workweek fell nine points to -5.3, indicating that factories had less need for labor.

But while current conditions may have taken a downturn, the six-month outlook remains somewhat optimistic. Forward-looking indicators for general business conditions and new order growth either fell much more modestly or increased. The index for job creation surged 15 points to 22.4, although the index for the future average workweek did fall another 4 percent.

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