Speculations of a March rate hike heightened on Yellen's hawkish comments and upbeat inflation and retail sales data. The OIS now prices in a 48% of rate hike next month, up from 37% a few days ago, while Bloomberg's estimate now suggests a 42% chance, up from 30% yesterday. Stock market rose across the board. Wall Street gained with both benchmarks, DJIA and S&P 500, making new record highs. European shares also strengthened with the broad Stoxx 600 index adding +0.34%. USD had a volatile day, though, as traders took profit from recent rally. The DXY index initially jumped to a 5-week high of 101.76 before retreating at 101.18, down -0.07%. The index continued to drift lower on Asia Thursday. In the commodity sector, crude oil prices slipped as US official report confirmed huge inventory build. Precious metals climbed higher as USD retreated. The benchmark Comex gold contract, recovering after a 4-day drop, added +0.64% at close, while the silver contract rose for a second consecutive day, by +0.42%.
Yellen's testimony before the House Financial Services Committee contained little new information. Yet, she indicated that, on the labor market, payrolls gains of 75-100K per month were sufficient to keep the unemployment rate stable. She also acknowledged that the improvement in Business and Consumer Confidence was real. While Yellen's testimony has overshadowed other Fed presidents who had delivered speeches Wednesday, comments from Boston Fed president Eric Rosengren, non-voter and recent hawk, were interesting. He suggested that more than three rate hikes was possible for 2017, as it would "likely be appropriate to raise short-term interest rates at least as quickly as suggested by the Fed's current…median forecast, and possibly even a bit more rapidly". Although the market has only priced in two hikes for this year, he noted that it "does not necessarily prevent us from raising rates if we think it's the appropriate thing to do".
On the dataflow, headline CPI in the US doubled to +0.6% m/m in January, lifting the annual inflation rate to +2.5%. This marks the highest rate since March 2012. Undoubtedly, the growth was mainly driven by the +4% m/m jumped in energy. Core CPI also firmed with the month-over-month reading climbing to +0.3% from +0.2% in December. From a year ago, core CPI improved to 2.3%, from +2.2% in December. The underlying trend of core inflation was upbeat. The 6-month annualized inflation rate rose to +2.5% and the 3-month annualized rate to +2.9%. On a separate note, retail sales grew +0.4% m/m in January, compared with consensus of +0.4% and the upwardly revised +1% growth in December. The headline reading has risen for 5 months in a row. From a year ago, retail sale expanded +5.6%, the highest since March 2012. Ex-auto retail sales growth improved to +0.8% m/m, doubling the upwardly revised +0.4% in December. Retail control rose to +0.4% m/m, steadied from the upwardly revised reading in December.
On oil inventory, the DOE/EIA reported that total crude oil and petroleum products stocks added +1.11 mmb to 1359.94 mmb in the week ended February 10. Crude oil stockpile rose +9.53 mmb to 518.12mmb, following a double-digit increase in the prior week, with stockpiles increasing in 4 out of 5 PADDs. Cushing stock slipped -0.7 mmb to 64.57 mmb while utilization rate dropped -2.3% to 85.4%. For refined oil products, gasoline inventory rose +2.85 mmb to 259.06 mmb as demand fell -5.68% to 8.43M bpd. Production decreased +8.71% to 8.95M bpd while imports plunged -25.52% to 0.6M bpd during the week. Distillate inventory dropped -0.69 mmb to 170.06 mmb as demand slipped -1.46% to 3.85M bpd. Production decreased -5.64% to 4.53M bpd while imports rose 3.35% to 0.22M bpd during the week.