– Right, Yellen, gee whiz, what a relentless dove. As Joe Weisenthal wrote earlier this morning, the Fed chair confirmed the one thing everyone thought they knew about her. What I found most compelling in the dove/hawk stakes was that she was dismissive of recent data. That’s okay because central banking always has an element of subjectivity about it but if she is going to dismiss the data, then what that means for markets is that they have lost any other lever on which to assess the outlook other than the Fed. Which is okay while Yellen is a dove but if she does a Carney and turns hawk without signalling it to the market, it’s going to be a big day for volatility.
– The other truly remarkable thing about the dovishness of this Fed decision (which, by the way, did taper by another $10 billion) is how clueless the FOMC is as a group on where rates will be at the end of 2015. Indeed, as Myles Udland wrote at BI in the US this morning, when you look at the “Dot Plot” “at least one FOMC member now sees interest rates at the end of 2015 at each rate between 0.25% and 2.25%.”
– So in the end a dovish Fed, uncertain or untrusting about the economic outlook, has goosed the stock market higher, helped 10-year Treasuries rally 6 points back to 2.59% (a good sign for the rally which forestalls any Minsky Moment for the time being) and reverted to the weapon it has consistently used to kick growth since 2009 – a weaker US dollar.
– So summing up: The Dow ripped 99 points higher for a gain of 0.59% to 16,907, the Nasdaq gained the same percentage to close at 4,363 and the S&P 500 climbed a solid 15 points to 1,957 for a gain of 0.77%.
– Europe missed the Fed-induced rally and will most likely catch up this afternoon. At last night’s close however, the FTSE was up 0.18% to 6,779, the DAX rose 0.10% to 9,930 and the CAC dropped back 0.13% to 4,530. Milanese stocks rose 0.15% while those in Madrid were up 0.48%.
– Locally the wash up is that the SPI 200 futures rose 16 points to 5398 bid after a weak day yesterday which saw the physical close at down 0.3% at 5,382.7.
– In Asia yesterday, the Nikkei rallied 0.97% but it is likely to suffer given the weaker US dollar and the fact that USDJPY is now back below 102. But then again it could be buoyed by the better US stock market. A battle of wills perhaps. In Shanghai, stocks fell after the lower-than-expected foreign investment data and at the close the Shanghai composite was 0.52% lower at 2,056 while stocks in Hong Kong fell just 0.09% to 23,182. The only data in the region is in Japan with the activity, leading and coincident indices to be released.
– Turning quickly to Bonds, the rally in the US helped 10-year Bunds and Gilts which rallied 1.7% and 1.41% respectively to close at 1.38% and 2.74% respectively. Locally, 3-year bonds on the SFE rose 5 points to 97.21 (2.79%) while the 10s rose 6 points to 96.31 (3.69%).
– On Currency markets, the US dollar was poleaxed by Yellen and the Fed losing ground across the board. The Aussie was one of the primary beneficiaries, rallying back to 94 cents and it sits at 0.9399 at the moment. Euro also rallied and is back at 1.3587 and GBP is closing in on 1.70 again at 1.6987 this morning. Hard to see the US dollar gaining traction again anytime soon.
– On Commodities, Iron Ore was down a little to $89.50 tonne, Newcastle coal fell 75 cents tonne to $71.80 and Nymex Jun Crude was down 39 cents closing at $106.04. Copper closed at $3.06 lb while Gold is still resting around $1270 oz and Silver just below $20. On the Ags, it was a day of green for a change with Corn up 0.63%, Wheat rising 0.90% and Soybeans gaining 0.77%.
On the data front, it is relatively quiet in our timezone with the Japanese data above and only the RBA Bulletin (scholarly type articles) and the report of the RBA’s FX transaction out. Tonight, retail sales in the UK and the Philly Fed’s manufacturing survey are important.
Jobless claims are of course also out, it being Thursday.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Fairfax shareholders have had a couple of good days. Yesterday the stock closed 5.5% above Friday’s low. Given the rally in US markets last night, it wouldn’t surprise if today was another positive one.
That said, for chart followers, the medium term down trend remains in place. The share price dropped below trend line support a couple of weeks ago and continues to make both lower lows and lower highs. The 20 day moving average is also pointing down and recently crossed below the 40 day.
A move through the low at .99c may create a reason to reassess bearish bias. But unless that happens, Fairfax is on my watch list as a stock that might produce a sell opportunity if this rally continues over coming days or weeks.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC