T3’s Take 3: Janet Yellen Sets Off a Rollercoaster


1) Fed Follies: Jackson Hole Edition

Traders were looking for a hawkish Yellen and a hawkish Yellen is what they got.

At her highly-awaited Jackson Hole speech, Federal Reserve Chair Janet Yellen said that the case for rate hikes “has strengthened in recent months,” echoing recent hawkish comments from other Fed officials.

Initially, the market made the obvious moves — the US dollar spiked, and gold and US Treasuries collapsed.

However, the moves were very quickly retraced, with the dollar and gold falling.

This implied the market was having a massive “sell the news” reaction to Yellen meeting market expectations.

2) The Reaction to the Reaction to the Reaction

Following that counter-reaction, the big hawk trade — strong dollar and weak gold/bonds — continued.

Here is an intra-day chart of the US dollar index starting at 8:00 a.m. ET, which is a pretty good illustration of the market reaction to Yellen's speech:

As you can see, the dollar briefly dove before skyrocketing into the equity market close.

We saw similar zaniness in gold and US Treasuries.

3) Equity Traders Take a Little Ride

Fed funds futures now imply a 63% probability of a December rate hike, up from 47% a week ago.

The prospect of higher rates had equity traders taking profits. At one point, the S&P 500 looked like it may have its first 1% down day since June 27, and the VIX hit 14.93, a level not seen since early July.

However, stocks crawled up into the close, with the index finishing down -0.2% at 2169.04.

Stocks that benefit from lower interest rates, like utilities, gold miners, and real estate names, took major hits.

On the plus side, biotechnology had a solid up day after afternoon failures on Wednesday and Thursday.

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Monday's Trading Calendar

US Economics (Time Zone: EDT)

08:30 Personal Income (Jul): exp. 0.40%, prior 0.20%
08:30 Personal Spending (Jul): exp. 0.30%, prior 0.40%
08:30 Real Personal Spending (Jul): exp. 0.20%, prior 0.30%
08:30 PCE Deflator MoM (Jul): exp. 0.00%, prior 0.10%
08:30 PCE Deflator YoY (Jul): exp. 0.80%, prior 0.90%
08:30 PCE Core MoM (Jul): exp. 0.10%, prior 0.10%
08:30 PCE Core YoY (Jul): exp. 1.50%, prior 1.60%
10:30 Dallas Fed Manf. Activity (Aug): exp. -3, prior -1.3

Global Economics

All Day GBP Bank Holiday
19:30 JPY Household Spending y/y
21:30 AUD Building Approvals m/m


Before Open:

None of significance

After Close:

None of significance