Markets await testimony from Yellen; dollar likely in focus

LONDON — Stock markets around the world traded in fairly narrow ranges Thursday ahead of Congressional testimony from Fed Chair Janet Yellen that most traders think will cement expectations over a rate hike next month.

KEEPING SCORE: In Europe, France’s CAC 40 rose 0.1 per cent to 4,504 while Germany’s DAX shed 0.1 per cent to trade at 10,644. The FTSE 100 index of leading British shares was 0.3 per cent higher at 6,741. U.S. stocks were poised for a steady opening, with Dow futures and the broader S&P 500 futures up 0.1 per cent.

YELLEN FOCUS: Though the election of Donald Trump as the next U.S. president has complicated the U.S. economic outlook, financial markets still think that a Fed rate hike next month is far more likely than not. What’s more interesting to markets is when the ensuing rate hike will be and it’s here that Trump’s victory could impact. Yellen is due to start addressing lawmakers on the Joint Economic Committee before the opening bell on Wall Street and that could impact on trading. Trump has promised to cut taxes and raise infrastructure spending, measures that could boost economic growth and potentially spur inflation. That’s seen a rally in stocks, a sell-off of U.S. bond yields and a concurrent rise in the dollar.

ANALYST TAKE: “With chances of a rate hike now at 94 per cent for December, there is a risk that the Fed’s leader could spark a bout of dollar weakness if she so much as hints at the possibility that the central bank won’t move in December,” said Chris Beauchamp, chief market analyst at IG. “Thus currencies like the yen and the euro which have fallen hard over the past few days against the US dollar, could be due a decent bounce, with worrying consequences for equity markets in those countries.”