Scoreboard: Yellen balm

Wall Street cheered as the Fed chair flagged continuing low interest rates and as tensions eased in Ukraine.

US equities got a boost overnight after Fed chair Janet Yellen, fresh after implying that rates could rise in early 2015, said the economy needed ongoing support from ultra-low rates for some time yet: “This extraordinary commitment is still needed and will be for some time, and I believe that view is widely shared by my fellow policy makers at the Fed.”

Yellen said that the economy was far from healthy and the labour market was worse than the unemployment rate suggested. Firstly because of the large pool of unemployed, and secondly because the number of employees willing to leave their jobs was low. She went on to say that the low unemployment rate was in part due to the falling participation rate, which was falling not only because of the ageing population but because demand was low.

The other factor also helping was an apparent easing in tensions in Ukraine. The Ukrainian Defence Ministry noted that Russian forces have begun a gradual withdrawal from Ukraine’s border. Moreover, Russian President Vladimir Putin and German Chancellor Angela Merkel agreed to stay in close contact and to discuss further steps to stabilise the situation in Ukraine.

Equities saw decent gains in the US, buoyed by Yellen’s statement. As I write, the S&P500 is up 0.8 per cent (1872), the Dow is 149 points higher at 16,472, while the Nasdaq is up 1.2 per cent (4206). Over in Europe, the Dax was off 0.3 per cent, the CaC was 0.5 per cent lower and the FTSE100 fell 0.23.

Rates did little in the end, with the 10-year Treasury yield unchanged at 2.72 per cent. The 10-year yield had reached a high of 21.76 per cent in the session but came off after Yellen’s comments. The 5-year yield is at 1.73 per cent and the 2-year at 0.43 per cent. Aussie futures were then off about 1-1.5 ticks on the threes (96.94) and the tens (95.895) respectively.

Commodities all sold off. Gold lost another $10 ($1283), silver then eased 0.2 per cent and copper was 0.4 per cent lower. In the crude space, WTI was down 0.2 per cent to $101.5, while Brent was 0.3 per cent lower at $107.7.

Forex markets saw the US dollar weaken following the Fed chair’s dovish commentary. The Australian dollar then pushed higher -- up just under 50 pips to 0.9272. The euro was then up 30 pips to 1.3782, while the British pound was up just over 40 pips to 1.6675. The yen sits at 103.22.

Elsewhere, German retail sales rose by 1.3 per cent in February after a 1.7 per cent surge the month prior. Eurozone inflation then came in at 0.5 per cent annually for March. In Britain, mortgage approvals were at 70,300 in February from 76,800. Finally for the US, the Dallas Fed manufacturing index rose to 4.9 in March from 0.3.

In markets today, the SPI suggests Aussie stocks will be flat. Then in terms of the macro data, the Reserve Bank’s cash rate decision at 1430 AEDT will be the key focus. No one is looking for the RBA to cut at this meeting and increasingly economists are of the view that the next move will be a hike. Certainly the RBA governor was much more upbeat in a recent speech, however the board, which has been excessively pessimistic on the domestic and global economies, may not share his enthusiasm. I doubt they’ll change the press release too much at this stage -- at most we may see a slightly more upbeat statement. Anyway, prior to that at 1000 AEDT we see RP Data-Rismark’s house price series and the Japanese Tankan at 1050 AEDT. At 1200 AEDT we see the Chinese manufacturing PMI.

For tonight then the key data flow will include European unemployment numbers, UK house prices and of course the ISM manufacturing survey.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.