Yellen speech keeps equity markets on track
The stock market looks set for a relatively flat day today as traders stay in neutral mode ahead of tonight’s US holiday. World equity markets also appear to have taken Janet Yellen’s confirmation that the Fed is likely to hike rates this year in their stride.
Janet Yellen’s speech last week has had the desired effect of moving market focus beyond the first rate hike to a recognition that the interests rates are likely to remain relatively low for a long time yet. Her speech was an indication to investors that there remains considerable risk in exiting risk assets on the basis that rising rates will force devaluation. Yellen’s expectation is that “that it will be several years before the Fed Funds rate would be back to it’s normal, longer-run level” is a reminder that there could be a long time between the first rate hike and any move in US bond yields significantly above 3%.
Recognition that any increase in long term rates may be very gradual was reflected in world market reaction to Janet Yellen’s statement. Bond yields held steady, while movement in the $US and equity markets were muted. This was a good result for investors, given that news of an improving CPI was a pointer to the fact that inflation is very close to being removed as a constraint on the Fed’s move to begin lifting rates and the first rate hike is likely to be only a matter of months away.
The situation with Greece’s debt looks as though it could be moving close to crunch point and is likely to figure in traders’ risk calculations this week.
Recent price action has now set up key support and resistance levels for the ASX 200 index for the short term. The 200 day moving average and last week’s low around 5570 now form support. A break below this level would be a bearish indicator. On the other hand the mid May high and March low around 5750 now look like significant resistance. A move through this level would provide comfort that the stock market is going to continue to drift in a trading range rather than head lower after May.
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Frequently Asked Questions about this Article…
Janet Yellen's speech helped keep the stock market stable by shifting focus beyond the first rate hike, indicating that interest rates will remain relatively low for a long time. This reassured investors and prevented a rush to exit risk assets.
The Fed's interest rate hike is significant because it signals a shift in monetary policy. However, Yellen's speech suggests that any increase in rates will be gradual, which means investors can expect low rates for several years, reducing the immediate risk of devaluation in risk assets.
Bond yields and equity markets remain stable because Janet Yellen's speech indicated that any rate hikes will be gradual. This reassured investors that long-term rates won't rise significantly above 3% soon, maintaining stability in the markets.
Inflation is a key factor in the Fed's decision to raise rates. The improving Consumer Price Index (CPI) suggests that inflation is no longer a constraint, making it likely that the Fed will begin lifting rates in the coming months.
Greece's debt situation is approaching a critical point and is likely to influence traders' risk calculations. The uncertainty surrounding Greece's financial stability could impact market sentiment and trading strategies.
For the ASX 200 index, the 200-day moving average and last week's low around 5570 serve as support levels. A break below this would be bearish. Resistance levels are around the mid-May high and March low at 5750, indicating potential for the market to remain in a trading range.
Investors should note that the US dollar's movement was muted following Yellen's speech. This stability suggests that the market has already priced in the gradual rate hikes, reducing immediate volatility in currency markets.
Investors can stay informed by following updates from financial news sources and market analysts. For specific insights, they can contact CMC Markets for further commentary on market trends and developments.
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