– It was a very interesting testimony of Fed chair Janet Yellen last night. As is the way of central bankers there was a lot of obfuscation about the language the Fed is currently using (“patience”) and any changes to that language and what that might or might not mean. I focused on the fact she said “any modification (to the language and use of ‘patience’) should be understood as reflecting the committee’s judgement that conditions have improved to the point where it will soon be the case that a change in the target rate could be warranted at any meeting.” But the market thought she implied rate cuts are further away if the bond rally is any guide. US 10-year treasuries rallied 7 points to 1.98%.
– In terms of boosting the economy, Yellen highlighted how accommodative policy is at the moment and Ray Attrill from NAB says that she “waxed fairly lyrical about the ongoing strengthening in the labour market (including referencing the strong January payroll print) and made nothing of the softer incoming data since the start of the year outside the labour market”. That is important context in the debate about the when of the first tightening and suggests it is closer than the recent data suggested. But again markets aren’t worried. Stocks up and bonds down is almost a perfect world for the Fed chair.
– Elsewhere, German GDP printed 0.7% for Q4 which had the year-on-year growth rate sitting at 1.6%. Both prints were right on expectations. Likewise, EU CPI at 0.6% yoy to Jan and the -1.6% print for the month were on expectations. US consumer confidence dipped to 96.4 from 99 expected while Case Shiller house prices rose 4.5% – slightly higher than expected.
– On Greece, the deal for the extension is done. The government in Athens has presented a plan that allows some face-saving at home but largely delivers what its paymasters want.
– At the close, the scoreboard in the US reads:
- Dow Jones up 0.51% to 18,209
- Nasdaq up 0.14% to 4,968
- S&P up 0.25% to 2,115
– European markets at the close:
- London(FTSE 100) up 0.55%, 38 points to 6,950
- Frankfurt (DAX) up 0.67%, 75 points to 11,206
- Paris (CAC) up 0.49%, 24 points to 4,886
- Milan (FTSEMIB) up 0.85%, 186 points to 22,150
- Madrid (IBEX) up 0.68%, 75 points to 11,065
– Locally, it is hard to deny the influence of the strength in global stock markets, even though many believe the ASX is getting “fully priced”. Last night SPI traders just got on with it and bought the March contract 27 points higher to 5,911.
– In Asia yesterday, Tokyo set another new 15-year high up 0.74% to 18,603. Hong Kong was down 0.35% to 24,750. Shanghai is back today and the overall positive tone that has gripped stock markets across the globes while the Chinese New year celebrations have been under way are likely to drive the market higher.
– On rates markets, as noted above, the US 10s like what they saw and heard from Yellen and they are now at 1.98%. German 10s closed at 0.34% and UK Gilts were a little higher at 1.76%.
– On currencies, there hasn’t been a lot of reaction but I sense they are following the bonds because we have seen the US dollar back right off earlier strength. Euro is at 1.1340 from a 1.1287 low overnight. GBP is looking solid at 1.5461, USDJPY is at 118.88 from a 119.83 high overnight. The Aussie is also up 1 cent (thanks no doubt to the Canadian dollar rally) to 0.7833 from 0.7736 overnight.
– On commodity markets, crude is down again at $49.05 of 0.81% but copper rallied to $2.6450 and gold is just below $1200 as the risk appetite feel about markets saps gold’s recent strength. On the bulks, March iron ore was up 44 cents to $63.19 but June is unchanged at $61.63 a tonne. Newcastle coal for March dipped 75 cents to $66.95.
– On the data front today, we get the wage price index and construction work done at 11.30am. China is back and the HSBC “flash” PMI is out. Tonight, Yellen is speaking again, as is Mario Draghi. The only data release of note is new home sales. Energy traders will watch EIA crude stocks.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The evolution of online shopping is gradually unfolding and it looks increasingly likely that “click and collect” will play an important role. This thinking appears to be behind the positive reaction the market had to yesterday’s announcement that Woolworths will operate as a collection centre for eBay. Click and collect looks like being a new source of value for the supermarkets chains’ bricks and mortar outlets their wide range of convenient pick up points.
However, after this excitement it will be back to business as usual for Woolworths with its half yearly profit results due on Friday. The recent rally has raised the bar in terms of market tolerance for any disappointment. The stock now goes into this report trading on around 17 times F15 earnings. This means results will need to be at least in line with expectations to maintain the current momentum.
The chart has also arrived at a zone of potential resistance consisting of the 200 day moving average (green line) and 78.6% Fibonacci retracement of the last major decline. A clear move above the 78.6% retracement level around $34.50 would be a positive development from a medium term point of view.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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