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Federal Reserve Chair Janet Yellen’s semiannual testimony takes the spotlight next week as investors watch for clues on US monetary policy and her take on the current political climate.

Here’s what to watch in the coming days.

Yellen testimony

Ms Yellen will deliver her “Humphrey Hawkins” testimony before the Senate Banking Committee on Tuesday, followed by an appearance before the House Financial Services Committee on Wednesday.

The Fed has signalled three interest rate rises this year. Sticking to its mantra that all meetings are ‘live’, investors will watch for closely watch “how forceful she is in promoting the notion that March is still on the table,” said Tom Porcelli of RBC Capital Markets.

Indeed, federal fund futures currently imply a 13.3 per cent chance of a rate rise next month, according to CME data.

“Given the uncertainty of timing on the fiscal agenda and the relatively modest uptick in inflation thus far this year, we think it will be difficult for the committee to get enough members on board for a hike in March (not to mention that the French election in late April/early May looms large as a potential catalyst for global volatility),” Mr Porcelli said. “But Yellen could certainly move the “perception” needle on this.”

In the Q&A session, Ms Yellen will likely be grilled on Fed independence, the central bank’s economic outlook and its view on Mr Trump’s planned proposals.

US data

Aside from Ms Yellen’s remarks, investors will also digest a heavy serving of US economic data, as they get updates on inflation, retail sales, industrial production and the housing sector.

The latest report from the Bureau of Labour Statistics due Tuesday is expected to show that US producer prices cooled last month. Economists polled by Bloomberg estimate that core producer prices, which exclude more volatile items like energy and food, slowed to a 1.1 per cent year-on-year gain, compared with a 1.6 per cent rise in December. On a monthly basis, headline PPI is projected to remain flat.

Meanwhile, consumer prices released the following day are expected to show that CPI was unchanged on a monthly basis while advancing 2.4 per cent from a year ago.

Estimates for a 0.1 per cent monthly rise in January retail sales, following a 0.6 per cent gain in December, might lead some to believe that Americans tightened their purse strings last month. Nevertheless, so-called core retail sales, which strip out autos and petrol, are expected to have climbed 0.4 per cent.

Industrial production, which was boosted by cold weather at the end of last year following an unseasonably warm November, is expected to have slowed in January as well. Finally, housing starts are expected to have moderated last month, following a jump at the end of 2016.

Munich security conference

German chancellor Angela Merkel, US vice-president Mike Pence and US defence secretary James Mattis are among those expected to attend the 53rd Munich Security conference.

The three-day conference starts on February 17, and will focus on transatlantic relations after Donald Trump’s win in the US presidential election, along with the state of European cooperation on security and defence matters, relations with Russia and the war in Syria.

Netanyahu visits the US

Following visits from British Prime Minister Theresa May and Japanese Prime Minister Shinzo Abe, US President Donald Trump welcomes Israeli Prime Minister Benjamin Netanyahu to Washington on Wednesday.

Mr Netanyahu — who clashed with Mr Trump’s predecessor, Barack Obama, over tacit constraints on settlement expansions — has welcomed Mr Trump. However, the Trump administration did not issue a warm welcome to the Netanyahu government’s decision to approve the construction of new homes in settlements in the West Bank. White House spokesman Sean Spicer said last week that “the expansion of existing settlements beyond their current borders may not be helpful”. Mr Spicer has, however, noted that the US president has not taken “an official position” on the issue.

Earnings

US earnings season begins to wind down with about 60 companies on the S&P 500 reporting quarterly results, including Cisco Systems, Pepsico, Deere and Kraft-Heinz. Outside the US, investors will watch for earnings from Credit Suisse and Nestle.

Copyright The Financial Times Limited 2017. All rights reserved.
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