By Övünç Kutlu
U.S. letter, week beginning Nov. 21

-What happened last week?

The most important development last week was the Federal Reserve Chair Janet Yellen’s comments on the wellbeing of the American economy and the likelihood that the central bank will make a rate increase next month.

Yellen said on Thursday during her speech in the U.S. Congress that the Fed may increase its benchmark interest rate "relatively soon.”

"The U.S. economy has made further progress this year," towards the Fed's objectives of maximum employment and price stability, Yellen noted, as she painted a positive picture about the American economy.

The U.S. added an average of 180,000 jobs per month from January through October and the unemployment rate stood at 4.9 percent in October, which suggests the economy "has had a bit more room to run than anticipated earlier," she said.

"U.S. economic growth appears to have picked up from its subdued pace earlier this year ... consumer spending has continued to post moderate gains," she added.

Inflation increased 1.25 percent in the last 12 months ending in September -- higher than earlier this year, but still below the Fed's 2 percent target.

Yellen said she expects economic growth to continue at "a moderate pace" to further strengthen the labor market, while job gains and low crude oil prices should continue to support consumer spending, suggesting that the Fed's 2 percent inflation target could be met in the next two years.

Despite economic progress, the Fed did not raise interest rates in seven of its meetings this year but repeatedly said it is awaiting stronger macroeconomic data.

"Waiting for further evidence does not reflect a lack of confidence in the economy," Yellen noted, adding that the Fed "judged that there was somewhat more room for the labor market to improve".

She warned, however, that waiting too long to implement a rate gain could force the Fed to make multiple rate increases "abruptly" and that could "encourage excessive risk-taking and ultimately undermine financial stability".

The Fed's final meeting of the year will be held on Dec. 13-14.

A number of officials from the Federal Open Market Committee (FOMC) also made comments on Friday that signaled the Fed could make a rate rise next month.

Fed regional directors William Dudley of New York, Esther George of Kansas City, James Bullard of St. Louis, and Robert Kaplan of Dallas all said they support the Fed raising its benchmark interest rate on Dec. 14.

After the FOMC officials’ remarks supporting a rate hike, the U.S. stock market closed Friday with losses, but it managed to finish the week with gains overall. Last week, the Dow Jones rose 0.2 percent, the S&P 500 increased 0.8 percent and the Nasdaq gained 1.6 percent.

Much of the weekly increase came with the rise in oil prices. With the hopes that OPEC will limit its production quota at the end this month, crude prices jumped 6 percent on Tuesday.

Another reason behind Wall Street finishing the week with gains was the macroeconomic data, which came in line with market expectations, and was positive in general.

Retail sales in October rose 0.8 percent, compared to the previous week, beating the market expectation of a 0.6 percent increase. The rise in retail sales for September was also revised to 1 percent from 0.6 percent.

Producer Price Index stood steady in October, but Consumer Price Index rose 0.4 percent on a monthly basis and to 1.6 percent year-over-year.

Initial jobless claims came in at 235,000 last week -- the lowest level in 43 years.

-What to expect this week?

This week investors and markets will closely watch the FOMC officials’ comments, the Fed minutes and upcoming macroeconomic data.

The Fed Vice President Stanley Fischer will make a speech in New York on Monday and the FOMC minutes of October meeting will be released Wednesday. The minutes will be closely watched by investors to get an indication as to whether the Fed will increase its benchmark interest rate on Dec. 14.

Wednesday will be the busiest day for incoming macroeconomic data. New home sales, durable goods orders, initial jobless claims and the change in the U.S.’ weekly crude oil and gasoline inventories are all due Wednesday.

If the incoming macroeconomic data comes within market expectations and points to the strengthening of the American economy, the likelihood of the Fed making a rate increase is expected to increase, according to analysts.

Wall Street will be closed Thursday due to Thanksgiving Day, and the U.S. stock market will be open only until 1.00 p.m. local time (1800 GMT) on Friday.

On the oil market, investors are awaiting OPEC’s semi-annual meeting on Nov. 30 in Vienna. OPEC members Iran, Iraq, Libya and Nigeria asked to be exempt from a potential deal that would limit the cartel’s output, which continues to create skepticism for investors. Oil prices could see a sharp decline if the proposed deal is not reached at the end of this month, experts warn. 

21 Nov,2016