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Following testimony by Federal Reserve Chairwoman Janet Yellen, Wall Street and European stocks surged last week, as investors weighed her dovish commentary. The week also saw an interest rate hike by the Bank of Canada (BOC) and mixed U.S. data releases.

Yellen Testimony Dovish

U.S. stocks logged multiple record highs after Yellen testified before both houses of Congress. In her testimony, the Fed chief said policymakers will adopt a gradual approach to normalizing monetary policy over the forecast period.

“The evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices,” Yellen told the House Financial Services Committee on Wednesday.[1]

Yellen also expressed concern over inflation, which has weakened significantly in recent months. The Fed targets price-growth at 2% annually, and is unlikely to adopt an aggressive rate-hike path if inflation falls below that level.

By Friday, all of Wall Street’s major indexes were at record highs, with the Dow Jones Industrial Average posting its third straight record close.[2] The Dow closed at 21,637.74 on Friday. The S&P 500 Index ended at 2,459.27.

European stocks traded mixed on Friday, just two days after posting their biggest one-day advance in two-and-a-half months.[3]

Bank of Canada Raises Interest Rates Raising the CAD

The Canadian dollar surged to nearly one-year highs last week after the BOC became the second G7 nation to raise interest rates. Encouraged by a rebounding economy, the BOC raised its rate overnight by 25 basis points to 0.75%. That was the BOC’s first interest rate increase in nearly seven years.

The BOC slashed interest rates twice, back in 2015, to support the economy amid the oil-price collapse. The rate hike last Wednesday signaled that ultra-loose monetary policy had done its job.

The USD/CAD exchange rate ended the week at 1.2640. The U.S. dollar index (DXY), which tracks the performance of the greenback against a basket of major peers that includes the loonie, continued to backtrack last week.

U.S. Data Mixed

Investors hoping for a broad pickup in the U.S. economy were largely disappointed on Friday following another mixed batch of economic figures. U.S. retail sales declined unexpectedly last month, falling 0.2%, the Commerce Department reported Friday. Meanwhile, consumer inflation stalled unexpectedly from a month earlier and weakened to an annualized 1.6%. Both figures were below the consensus forecasts.

 

Industrial production was the lone bright spot, rising 0.4% from April. That was the fifth consecutive monthly advance.

[1] Kelly Song (12 July 2017). “Read Fed Chair Janet Yellen’s full testimony.” CNBC.

[2] Sam Bourgi (14 July 2017). “DJIA Today: Dow Jones Futures Extend Record Run to Three Days.” Economic Calendar.

[3] Sam Bourgi (12 July 2017). “DJIA Today: Dow Jones Futures Hit Record Following Yellen Testimony.” Economic Calendar.

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