Oil prices on the move, Yellen speaks

In this week’s video update:

Yellen and other U.S. Federal Reserve (Fed) members speak out about strengthening economy and likelihood of a rate hike this year.
As post-Brexit fears ease, European markets seem to return to business: STOXX 600® is up about 1% and the European economy is on pace for 1.5-2% annualized economic growth.
West Texas Crude is up about 13.5% this week. What factors are contributing to the improvement in price?
Russell Emerging Markets® Index is up roughly 14% this week, likely due to several factors including oil demand and the strength of the U.S. dollar.

On this week’s update, Director, Investments Bindu Sutaria meets with Chief Investment Strategist, Erik Ristuben to discuss the week’s market events and what is ahead for oil, the Fed and emerging markets.

Yesterday Fed Chairwoman Janet Yellen again echoed other Federal Reserve board’s recent comments about the strength of the U.S. economy, noting the economy is on solid footing, its job market is strong and inflation is in check. While Yellen says the case has strengthened for a rate hike in recent months, our strategists still don’t think a September rate hike is on the table, and as stated in our Global Market Outlook – Q3 Update, we believe a rate hike in December is most likely.

Ristuben notes he doesn’t expect other central banks to follow the Fed’s probable lead on interest rates, given the wide difference in economic indicators in Europe and Japan. Rather, he expects the divergence of central banks to continue.

Looking towards Europe, Ristuben flags that post-Brexit, markets saw relatively good performance this week compared to recent weeks, with the STOXX 600 up about 1%. This is likely due to markets recognizing that any real impact from Brexit is at least a year away, combined with improving economic data. Europe is continuing to grow about 1.5-2% on annualized basis, as our strategists forecast earlier this year.

Ristuben and Sutaria also discuss the changes in oil prices this week with West Texas Crude rising about 13.5%. He notes much of this rise is potentially due to the combined factors of increased demand from China (its imports of oil are now up about 10% year-over-year) and an easing of market concerns about the pace of oil supply deconstruction. However, Ristuben also warns that oil prices are still far from a long-term equilibrium and some level of volatility is likely for the near term.

To wrap up, Ristuben takes a quick look at improving emerging markets, as evidenced by the Russell Emerging Markets Index being up about 14% this week and notes the growth is likely due to several factors including the strength of the U.S. dollar, as well as oil’s potential. Markets appear to be recognizing the potential value in emerging markets.

Next week’s discussion will include a review of newly released U.S. jobs numbers and more.

In the meantime, answer our latest twitter poll from @Russell_Invest:

Do you think the Fed will raise rates in September based on Yellen’s latest speech?