European markets have moved sharply higher this morning with strong gains across the board after Fed chief Janet Yellen clarified her, and the FOMC’s position on a possible rate move, after the rather mixed reaction to its statement and press conference last week.
The best performers have been in the auto and commodities space with Glencore (LONDON:GLEN) continuing its roller coaster ride, while catalytic converter maker Johnson Matthey (LONDON:JMAT) is also higher as well.
By nailing down the fact she still expected the FOMC to raise rates sometime this year she appeared to assuage some concerns in the market that the Fed had gone cold on the idea for a move in 2015.
By resetting those expectations she appears to have given reassurance to investors about timings, but ultimately she hasn’t really said anything new, and last night’s speech appears to have been
nothing more than a sop to the market, which continues to behave like a petulant child that constantly needs parental reassurance.
She went on to play down the risks emanating from a China slowdown in contrast to last week's statement and the markets appear to have liked the more upbeat tone, but she still left plenty of wiggle room in case events don't pan out as expected, by stating that any decision would still be data dependant.
While markets appear to have taken comfort from the slightly clearer tone last night a lot can change between now and October and or December, and recent data does suggest that the Fed’s timetable could well be blown off course.
Furthermore Mrs Yellen’s assertion that inflation effects are short term and transitory doesn’t bear up to the facts that commodity prices have been putting downward pressure on prices for over three years now. That’s not transitory, that’s a trend.
As a result of last night’s speech and today’s rebound in Europe US markets look set to open higher with Nike (NYSE:NKE) shares likely to be in focus after the company reported better than expected Q1 numbers, with strong growth across all its key regions.
Google (NASDAQ:GOOGL) shares are also likely to be in focus on reports that it is under investigation by US anti-trust regulators over its Android operating system
US Q2 GDP is expected to be confirmed at 3.7%, while all eyes will be on speeches by Federal Reserve members James Bullard and Esther George later today. They are avowed hawks so they are likely to reinforce the message given to markets by Janet Yellen last night about a rise in rates this year.
- The Dow Jones is expected to open 186 points higher at 16,387
- The S&P500 is expected to open 18 points higher at 1,950.0
DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.