Drop In US Equities Sends Stocks Down To Three-Month Low

A drop in US equities in the final hour sent US stocks down to a three-month low.

Fed Vice Chair Yellen states that she is "strongly supportive" of a more rule-based guidance.

Focus today on euro area industrial production, UK inflation report, US retail sales and FOMC minutes.

Markets Overnight
It has been a relatively calm session overnight. The negative sentiment from the early European trade was erased after the US opened. The improvement in risk appetite was fuelled by better-than-expected earnings from Home Depot – another sign that the US housing market is improving.

Nevertheless, US equities ended in negative territory after a sell-off in the final hour. The S&P500 dropped by 0.4% to the lowest level in more than three months. In Asia stock indices are trading in positive territory this morning. Nikkei is up 0.1%, while Hang Seng is up 0.9%. In FX markets EUR/USD has increased slightly and is this morning trading around 1.272.

Fed’s Vice Chair Yellen, who could become Bernanke’s successor, gave a little more colour last night on how the FOMC is moving towards a more rule-based policy approach that is targeting numerical thresholds. She said that "the Committee might eliminate the calendar date entirely and replace it with guidance on the economic conditions that would need to prevail before lift-off of the federal funds rate might be judged appropriate."

Yellen made it clear that she is "strongly supportive" of such a change. Furthermore, she hinted that inflation slightly higher than the target could temporarily be accepted, saying that "higher inflation in the context of a stronger recovery, perhaps judging, in the spirit of the optimal policy simulations, that somewhat higher inflation is warranted for some time to achieve faster progress in reducing unemployment." The minutes from the last FOMC meeting will be released tonight and may give an indication of how close the Fed is to finding specific indicators and threshold values for a monetary policy rule.

Greece will continue to be in the limelight over the coming week as the Eurogroup postponed the decision on releasing the delayed tranches to 20 November. On that note, German Finance Minister Wolfgang Schäuble indicated that the three delayed tranches amounting to EUR44bn could be disbursed in one payment.

The conditions, which include suitable control mechanisms, are still being negotiated. Yesterday Athens successfully raised EUR4bn in one- and three-month T-bills, which, together with an expected issuance later this week, should allow Greece to redeem bills amounting to EUR5bn due on Friday, see

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