Yellen Stays Vague on Rate Hikes but Wall Street Loves It

A much-awaited speech from Federal Reserve Chair Janet Yellen on Monday afternoon kept rate-hike plans vague with nearly every option left on the table. 

Wall Street responded favorably to an absence of hawkish commentary rather than any clearer indication on a tightening timetable. The S&P 500 closed 0.49% higher, the Dow Jones Industrial Average added 0.63%, and the Nasdaq rose 0.53%.

Yellen, in a speech to the World Affairs Council of Philadelphia, said the U.S. is still on track for further rate hikes, though the weak May jobs report does call the economic outlook into question.

Yellen gave no time frame for further rate hikes but said that further gradual moves will "probably" be appropriate. Yellen did note that the Fed could make moves even before it reaches its growth targets.

"Yellen left all options on the table as she highlighted firmer economic momentum while characterizing the latest employment flop as "disappointing" and "concerning" -- though she cautioned "that one should never attach too much significance to any single monthly" piece of data," BNP Paribas analysts wrote in a note. 

Fed members will next meet on Tuesday, June 14, with an announcement set for the next afternoon. The chances of a rate hike in June dropped to 4% probability, according to the CME Group, after the number of U.S. jobs added to payrolls in May came in well below expectations. Chances of a rate hike in June were higher than 20% at the end of May.

The central bank's monetary policy committee is likely "to strike a similar tone to Yellen's comments today: still hopeful that the near-term outlook will provide enough of a platform to raise rates in the period ahead, but wary that the latest round of data is signalling a more lasting slowdown," added BNP analysts. 

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St. Louis Fed President James Bullard noted that while there is a low chance of a June rate hike, July is still very much in play. Speaking in Singapore, Bullard noted that U.S. labor markets are at or around full employment, one of the strongest arguments for another rate hike.

Atlanta Fed President Dennis Lockhart concurred with his colleague's assessment of the timing.

"The combination of the jobs report on Friday and the 'Brexit' consideration justify patience," Lockhart told Bloomberg Television on Monday. The U.K. will vote in a referendum on June 23 to determine whether to exit the European Union.

The pace of rate hikes depends on whether the May jobs report proves to be an an outlier, Boston Fed President Eric Rosengren said in a speech in Helsinki. Rosengren noted that economic data has been "choppy," arguing that it will be "important to see whether the weakness in this report is an anomaly or reflects a broader slowing in labor markets."

Crude oil moved higher, recapturing a level above $49, after Friday's selloff. Oil was under pressure on Friday after the number of active U.S. oil rigs showed a surprise increase in the previous week. In recent months, crude has been supported by falling U.S. production, which has eaten into domestic inventories.

West Texas Intermediate crude oil closed 2.2% higher at $49.69 a barrel on Monday.

The energy sector was a top performer in markets Monday. Major oilers Exxon Mobil (XOM) , Halliburton (HAL) , ConocoPhillips (COP) , and Chevron (CVX) climbed, while the Energy Select Sector SPDR ETF (XLE) popped 2.2%. 

Walmart (WMT) was upgraded to buy from hold with an $82 price target at Jefferies. Analysts said that store checks and surveys suggest that execution is improving.

Tyson Foods (TSN) was cut to market perform from outperform at BMO Capital Markets. The firm also lowered its price target to $69 from $78. Analysts said their "overarching view" on the food company remains, though current valuations deter investment.

Source:Kitco