For quite some time now markets had been looking ahead to this summer, and a possible hike in US interest rates, and expectations had been rising that yesterday's speech by Fed Chair Janet Yellen might give some clues to the Fed's thinking
about when markets could expect to see a change in tone in the Fed statement, or at least a modification in the language, with a particular focus on the timing of the removal of the word "patience".
Unfortunately Ms Yellen was not in an obliging mood
and the markets didn't get what they expected which was a speech and tone unexpectedly more dovish than many had been expecting.
As a result stock markets didn't need much of an excuse to push up to new all-time highs with the FTSE100 finally joining the all-time high club
after fifteen years of waiting, joining the German DAX
, Dow and the S&P500 in the process.
While some may argue that yesterday's comments haven't changed that much they do fly in the face of the recent optimism surrounding recent jobs data,
and sent bond yields sharply lower, as expectations of a Fed rate rise drifted out into the autumn.
The fact that the Federal Reserve still has doubts about the US economic recovery after the addition of nearly 1 million jobs in the last four months speaks volumes about the FOMC's view on the US economy,
and suggests that some members are concerned about the effect that falling global prices are having, in respect of inflation expectations in the US.
In this context next week's employment report and wages data is likely to be keenly anticipated,
particularly after the sharp rise in January's average hourly earnings data, prompted optimism that wages were starting to rise again. It remains to be seen if January's jump in wages can be sustained or was a one off minimum wage inspired aberration.
Markets were already inclined to the bullish side in any case
, as Greece and EU officials moved closer to signing off the four month bailout extension, as EU officials approved the latest Greek proposals to reform the economy, though the proposals were a little light on detail.
While the agreement is welcome it doesn't change the fact that Greece still has limited access to funds,
and also doesn't hide the fact that both the IMF and ECB expressed concerns about the level of detail, and indicated that they would insist that Greece would need to do more if it wanted the release of additional bailout monies.
The agreement, which is being touted as a "valid starting point"
also still needs to go to a vote in the German parliament later this week where there remains a great deal of scepticism about the new Greek government's reliability, though it should get enough votes to pass after German finance minister Schaeuble endorsed it.
For this morning European markets look set to open somewhat mixed
, after a slightly stronger than expected Chinese HSBC manufacturing PMI number for February which came in at 50.1 but still highlighting very real concerns about the overall health of the Chinese economy.
- the euro continues to find support above range support at 1.1270, with the larger key support at the 1.1205 level. Resistance remains near the 1.1450 level, with resistance behind that at the highs this month at 1.1530. This remains the next target on a move through 1.1460.
- the pound continues to find support just above the 1.5300 level and while we remain above 1.5280 the risk remains for a move through the 1.5500 area, towards 1.5800. Only a move back below the 1.5280 area argues for a move back towards 1.5200 and a retest of the 1.5000 lows this month.
- while below the 0.7460 level the pressure remains on the downside and the 0.7250 level.
- having topped out at 119.80 yesterday the US dollar went into full reverse, dropping back sharply as the current range remains intact. With support at the 118.20 level, and resistance at the 119.80 level, we would need to see a break either side to determine the next move with a resumption of the recent down move, and a return towards the 117.00 level preferred.
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