Stocks erased gains after Federal Reserve Vice Chairman Stanley Fischer said Chair Janet Yellen’s remarks leave open the possibility of an interest-rate hike in September. Bonds fell, while the dollar rose.

Global equities extended their weekly decline after Fischer told CNBC that Yellen’s remarks were consistent with the possibility of two hikes this year. Stocks had rallied earlier Friday as investors focused on her bullish comments on the U.S. economy. Treasury two-year note yields, among the most sensitive to monetary policy, jumped to the highest since June. The dollar rose against all major peers. Crude traded near $47 a barrel.

“Fischer wants to make September still on the table,” said Mark Kepner, managing director and equity trader at Themis Trading LLC in Chatham, New Jersey. “He mentioned he’s not concerned about the low growth we have had the first six months. He’s saying growth is more a productivity and investment story. There are light volumes, lightly staffed desks and these moves can easily happen.”

And:

“Fischer really maintained the focus on the near-term, whereas Yellen was a bit more comprehensive across the cycle,” said Eric Theoret, a foreign-exchange strategist at Bank of Nova Scotia in Toronto. “That’s where the distinction lies. Yellen’s was a broader discussion, Fischer’s was very much a narrow, near-term discussion and because of that we did see that broad dollar rally.”

David Fuller's view

I did not actually see or hear the full statements by Yellen and Fischer, but assume that they and their colleagues share many of the same uncertainties and changing or differing opinions as the rest of us.   Meanwhile, the US economy is sort of stronger than those of other developed nations but that is not saying much.  2Q profits are less than inspiring, to put it mildly.  Fischer may be trying to inspire ‘the productivity and investment story’, if that comment in the penultimate paragraph shown above accurately conveys what he said. 

If so, good luck to him because the US economy and stock market remain in need of both investment and productivity increases.  Additionally, the soft global economy needs capitalistic leadership from the USA.  Meanwhile, Fischer’s comments may be bait for a previously slumbering Dollar Index.  A clear breakout above the 100 level this year would be a headache for the US economy.  

(See also: Liberals fought for Janet Yellen to lead the Fed.  Now they hope she’s more ‘more ally than adversary’, from The Washington Post)

US investors have been positioned for a further upside extension by the S&P 550 Index, which floated higher in late-June and early-July on a sea of liquidity from global central banks.  However, it has lost upside momentum subsequently and wobbled today before halving the loss.  A close above 2200 is required to revive short-term higher scope

Investors old enough to remember Dow Theory will know that recent upside breakouts by the S&P and the Dow Jones Industrial Average have not been confirmed by the DJ Transportation Average.  The US 10-Yr Yield (weekly & daily) has also broken above 1.6%.  These are warning signs.