Markets reverse course as Yellen confirms tapering trend
By Colin Cieszynski Senior Market Analyst, CMC Markets
Overnight, we had seen US indices
climb and USD fall as traders anticipated dovish comments from new FOMC Chair Yellen at her first testimony to Congress in her new job today. Instead we received more of a stay the course direction.
Highlights of Dr. Yellen’s prepared remarks, which have already been released, include:
1) She has been part of the decision making process so expect continuity in the Fed’s approach to monetary policy
2) As long as there is ongoing improvement in labour markets and inflation toward targets further measured QE reductions likely, but no preset course leaves door open to change if needed.
3) Accommodative policy will remain after QE asset purchases end.
4) Remains committed to dual employment and inflation mandate.
Overall, it looks like unless something major happens regular taperings are likely to continue at this year’s meetings. That being said, it also looks like the Fed may keep interest rates low long after QE3 ends. None of this is really a surprise as it continues current policy trends, except perhaps to those that had expected her to come out more dovish.
In response to this report, US indices have been falling on anticipation of continued regular tapering, while USD has jumped and started clawing back overnight losses. Gold, which had rallied overnight on more emerging market problems, this time in Kazakhstan, has started to backslide on the USD rebound.
Reaction to Dr. Yellen’s comments may continue to impact trading through the day, particularly later in the morning when she faces questions from Congress. This may give an indication of the level of political opposition she faces and her ability to manage those calling for a more hawkish monetary policy.
Later in the day, focus may then turn to Bank of England Governor Carney’s inflation report and potential guidance changes while his former boss Canadian Finance Minister Flaherty delivers another budget.
Mosaic $0.36 vs street $0.51, $1B share buyback planned
Conagra cuts FY EPS guidance to R$2.22-%2.25 from $2.34-$2.38
Economic reports released overnight and this morning include:
Kazakhstan devalued its currency by 19% overnight to 185/USD from 155/USD.
Australia house price index 9.3% vs street 8.6%
Australia home loans (1.9%) vs street (1.8%)
Australia NAB business confidence 8 vs street 6
Australia NAB business conditions 4 vs previous 3
India trade balance ($9.9B) vs street ($10.1B)
Economic reports due later today include:
10:00 am EST FOMC Yellen testimony speech
4:00pm EST Canada federal budget