June, July or Wait. The Anticipation Builds for the Fed

May 31, 2016

June, July or Wait. The Anticipation Builds for the Fed Photo

Janet Yellen kept trading desks fully staffed on Friday, before the holiday weekend. Her speech at Harvard University provided no new information but it was the first time the Fed President directly commented on the prospects for Fed policy recently. Yellen stated that the economy continues to improve and that a rate increase would be warranted if the positive economic momentum continues. The Employment report will be released this Friday and it will be a key piece of information leading into Janet Yellen's speech on June 6.

Market participants have been going back and forth on a June versus July tightening. In my opinion, if the Employment number is solid and equity markets remain calm, I would increase rates prior to the uncertainty surrounding the "Brexit" vote before the July meeting. Since the odds of a June rate increase have risen from roughly 2% to approximately 34%, emerging market currencies and gold have weakened. At the same time US equities have been well bid and are testing recent highs.

I remain defensive on US Treasury bonds and gold, while I prefer a neutral position in US equities.

Tags: Monday Morning O'Malley | Employment numbers | Janet Yellen | Fed tightening | Brexit

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