Rate Liftoff Around the Corner

In remarks on Friday, Federal Reserve Chairwoman Janet Yellen highlighted the rate outlook in comments focused on the state of the US economy. While the Federal Reserve is monitoring certain metrics like employment, prices, and GDP, many of these indicators are not trending at the conditions sought for interest rate normalization. Yellen was very dismissive of first quarter GDP figures, noting the factors subduing growth were likely transitory. The second reading of first quarter GDP due later in the week is expected to show a substantial contraction from the prior figure with economists estimating -0.80% contraction versus the prior number which displayed 0.20% expansion. Core consumer prices rose at the fastest pace in years just as annualized CPI fell into negative territory, highlighting the headwinds to hiking rates. Equities retreated slightly on the comments while the dollar momentum higher continued on expectations of more hawkish monetary policies.

The recent ascension in the dollar has cooled the rally in commodities with gold largely reversing last week’s gains on the persistent weakness in the dollar. A rise in speculative net long positions according to the most recent CFTC numbers showed long positions rose to 122.6K versus 77.4K in the prior week amid the swift rally higher in prices. However, the rebound in the dollar cut the rally short with prices currently trending back towards the important $1200 per troy ounce level. WTI crude oil prices are also vulnerable, remaining under the key $60 per barrel technical level. Brent prices also continue to correct lower, presently trading beneath the $65 handle as the spread between the two major benchmarks narrows to $5.50. Action in commodities will likely be limited during today’s session owing to the Memorial Day holiday in the United States and bank holiday in the United Kingdom which will see abbreviated trading hours.