US Federal Reserve Chairperson Janet Yellen spoke at Harvard University on a number of issues, namely on the financial crisis which emanated during 2007-2008 but most importantly when asked about the FOMC’s current monetary policy stance, she stated that a rate hike in the coming months may be appropriate. This sent US Treasuries tumbling and the US dollar markedly higher ahead of the Memorial Day weekend.

Yellen's hawkish comments last Friday might not have been a clear cut vote or stance supporting a June rate hike, however the Fed Governor did leave the door open for a potential move next month, which, at this juncture, is enough to provide additional support to the US dollar.

Yellen is scheduled to speak once again on the 6th of June, and the market would expect her comments to be more indicative of the imminent monetary policy stance. With 10 days to go after that to the FOMC meeting on 15 June, market participants feel that Yellen is compelled to come clean on the matter; prolonging uncertainty would certainly damage the reputation and credibility of the Fed, something which the Fed is sure to avoid right now.

With the US and UK on holiday yesterday, trading volumes and economic data releases were muted, but this week is surely expected to keep investors on their toes. From Chicago PMIs, Consumer Confidence, ISM Manufacturing, Initial jobless claims and unemployment data in the US to German Retail sales, unemployment data, inflationary figures and factory orders as well as Chinese Manufacturing and Service PMIs, we surely have a lot to watch out for this week.

And to top it all up, we have also got the ECB MPC meeting this Thursday, whereby we expect ECB’s Draghi to shed more light on the imminent corporate bond purchases which form part of the Corporate Sector Purchase Programme (PSPP).

The increase in hawkishness by the Fed has sent precious metals tumbling in May, most notably gold (a safe haven), which is heading for its biggest monthly decline since June 2013. Many analysts are now pricing in the possibility of a June/July rate hike and are now focusing on the timing and possible risks a subsequent rate hike in 2016 could have on the greater scheme of things. Can the US economy withstand another 2 rate hikes? What are the implications of a stronger dollar on European exporters and Emerging Markets?

It is all about incoming economic data and this week is surely to be a good test. Let’s face it, the US economy has been robust to say the least unlike the rest of the world and it would be interesting to see whether Yellen will place more emphasis on the domestic economy or weigh the implications of hiking rates on the rest of the world, most notably emerging markets and the Eurozone.

Clearly, the rally in emerging markets was primarily due to the weakening US dollar – increased hawkishness by the Fed from this point forth could place additional weakness in emerging markets and commodities. With the Brexit vote round the corner, we would tread with caution in the wake of possible increased volatility in the months ahead.

This article was issued by Mark Vella, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.